The majority of EU countries spent more than they earned in 2023. Eleven member states exceeded the limit for budget deficits, Germany did not. However, when it comes to the debt ratio, the Federal Republic is still above the upper limit.
Several EU member states broke rules on budget deficits and public debt in 2023. Eleven countries had a deficit of more than three percent of total economic output, as shown Data from the EU statistics office Eurostat shows. This means they are above the EU-wide upper limits that the member states have set for themselves.
Except for Cyprus, Denmark, Ireland and Portugal, all 27 EU countries spent more money than they earned. Italy has the highest deficit at 7.4 percent, followed by Hungary (6.7 percent) and Romania (6.6 percent).
As in the previous year, the Federal Republic’s deficit was 2.5 percent and therefore does not exceed the limit. In the pandemic years 2020 and 2021, Germany was even deeper in the red at 4.3 and 3.6 percent.
13 countries exceed the debt ratio upper limit
The EU debt rules are currently being reformed. In principle, however, the federal states should still keep the financing deficit – i.e. the difference between income and expenditure in the public budget, which is primarily covered by loans – below three percent of gross domestic product (GDP).
In addition, the debt level of a member state must not exceed 60 percent of economic output. Last year, according to Eurostat, 13 EU countries had a debt ratio of more than 60 percent of GDP.
Germany will probably be under from 2027 Debt ceiling
The highest debt ratios in 2023 were in Greece (161.9 percent), Italy (137.3 percent), France, Spain and Belgium. The lowest public debt ratios were in Estonia (19.6 percent), Bulgaria (23.1 percent), Luxembourg, Denmark, Sweden and Lithuania.
Germany’s debt ratio was 63.6 percent – close to the upper limit of 60 percent. According to IMF forecasts, countries are becoming more indebted again – but against the trend, the debt ratio in Germany will probably decline gradually and will be below 60 percent of economic output again from 2027.
Due to the Corona crisis and the consequences of the Russian attack on Ukraine, debt criminal proceedings were recently suspended. From this spring, they should be able to be initiated again if the upper limits are exceeded. A country must then take countermeasures to reduce debt and deficit. This is intended to ensure the stability of the Eurozone.
When does national debt become a problem?
The point at which the debt ratio becomes a serious problem for a country is controversial in economics, said Martin Beznoska, senior economist for financial and tax policy at the German Economic Institute (IW) last year ARD-fact finder. “In general, it can be said: If the debt ratio drifts over several years, it becomes a problem.”
Because then the debt threatens to take on a life of its own. “If the interest burden on a national budget continues to rise, then at some point the country will already be in deficit just because of the interest.” In the worst case scenario, a national bankruptcy could occur at some point if the capital markets no longer believe that the state can service its debts.
It is also crucial whether a country has debts in the national currency or a foreign currency. In the first case, government bonds can be bought if necessary to stabilize the price. This means that a national bankruptcy is virtually impossible. The latter happened to Greece in 2010: At that time, there was a threat of national bankruptcy.
Matthias Reiche, ARD Brussels, tagesschau, April 22, 2024 5:06 p.m