Global attention turned to the debt-burdened EU countries

The world's attention turned to the budget deficit problems of a few European Union (EU) nations.

Under the provisions of the Stability and Growth Pact, EU members agree to respect two criteria: a deficit-to-GDP ratio of 3 percent and a debt-to-GDP ratio of 60 percent.

Deficits have swelled amid sharp declines in tax revenues and increases in social spending such as unemployment benefits.

Governments, meanwhile, are reaching into state coffers to stoke growth and investment and fight the worst economic slump since World War II.

In all, EU countries are pumping an estimated 3.3 percent of the EU's GDP, or roughly euro 400 billion, into the economy over two years.

The projected budget deficit-to-GDP ration of 2009 for Greece is 13 percent, Ireland 12.5 percent, Spain 11.4 percent, Portugal 9.3 percent, and Italy at 5.3 percent.

And the debt-to-GDP ratios for Greece is 99.2 percent, Ireland 44.1 percent, Spain 39.7 percent, Portugal 66.3 percent, and Italy's 105.8 percent is the top runner.

It is not really that serious compared with the U.S. as the benchmark, where deficit-to-GDP is 10.2 percent, and debt-to-GDP is 94.3 percent and projected to break 100 percent by 2012.

We believe the budget deficit problems will be reined in as governments take steps to limit spending and raise taxes but none of them will default on their bond issues.

The downside is these countries will probably grow even slower with the new fiscal measures.

The finance minister at the G7 meeting reached agreement to continue stimulus spending, calming the market while President Obama outlined his proposal to create more jobs.

The much anticipate labor report in the U.S. was mixed, The establishment survey of 375,000 businesses showed reduction of another 20,000 jobs, less than the average forecast of 15,000 jobs added, but the survey of roughly 60,000 households showed unemployment rate dropped to 9.7 percent from 10 percent and the bright spot is that manufacturing added jobs for the first time in two years.

If you have any questions or comments, please contact Capital Management Corporation at john_cheng@capital.com.tw

Subscribe to The China Post and save 25%. Click here

SharePrintEmail

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos
 Respond to this email