Will Europe’s Sinners Save Themselves?

When German officials pushed in the 1990’s for the Stability and Growth Pact as a prerequisite for giving up the Deutschmark, they did not anticipate that Germany would be the first country to violate the pact. While the pact says that a government cannot borrow more than 3% of its GDP, Germany’s public-finance deficit reached 3.7% of GDP and more from 2002 to 2004.

There have been more sinners, though. France also violated the pact’s fiscal criterion in these three years. Portugal did so in 2001 and the Netherlands in 2003. Greece cheated by manipulating its statistics: while the reported deficits were below the limit, the country had to admit that the true deficit from 2000 to 2004 was 4.3% on average and never below 3.7%.

Other countries have been more successful due to fortunate circumstances. Italy, for example, not only benefited from its government’s creative accounting, but also from the fact the euro led to interest-rate convergence in Europe. Long-term interest rates for Italian government bonds declined from about 12% to about 4% in the ten years from 1994-95 to 2004-05. With the Italian debt/GDP ratio currently at roughly 106%, lower borrowing costs reduced the public debt ratio by more than eight percentage points.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.


Log in

  1. Sean Gallup/Getty Images

    Angela Merkel’s Endgame?

    The collapse of coalition negotiations has left German Chancellor Angela Merkel facing a stark choice between forming a minority government or calling for a new election. But would a minority government necessarily be as bad as Germans have traditionally thought?

  2. Trump Trade speech Bill Pugliano/Getty Images .

    Preparing for the Trump Trade Wars

    In the first 11 months of his presidency, Donald Trump has failed to back up his words – or tweets – with action on a variety of fronts. But the rest of the world's governments, and particularly those in Asia and Europe, would be mistaken to assume that he won't follow through on his promised "America First" trade agenda.

  3. A GrabBike rider uses his mobile phone Bay Ismoyo/Getty Images

    The Platform Economy

    While developed countries in Europe, North America, and Asia are rapidly aging, emerging economies are predominantly youthful. Nigerian, Indonesian, and Vietnamese young people will shape global work trends at an increasingly rapid pace, bringing to bear their experience in dynamic informal markets on a tech-enabled gig economy.

  4. Trump Mario Tama/Getty Images

    Profiles in Discouragement

    One day, the United States will turn the page on Donald Trump. But, as Americans prepare to observe their Thanksgiving holiday, they should reflect that their country's culture and global standing will never recover fully from the wounds that his presidency is inflicting on them.

  5. Mugabe kisses Grace JEKESAI NJIKIZANA/AFP/Getty Images

    How Women Shape Coups

    In Zimbabwe, as in all coups, much behind-the-scenes plotting continues to take place in the aftermath of the military's overthrow of President Robert Mugabe. But who the eventual winners and losers are may depend, among other things, on the gender of the plotters.

  6. Oil barrels Ahmad Al-Rubaye/Getty Images

    The Abnormality of Oil

    At the 2017 Abu Dhabi Petroleum Exhibition and Conference, the consensus among industry executives was that oil prices will still be around $60 per barrel in November 2018. But there is evidence to suggest that the uptick in global growth and developments in Saudi Arabia will push the price as high as $80 in the meantime.

  7. Israeli soldier Menahem Kahana/Getty Images

    The Saudi Prince’s Dangerous War Games

    Saudi Arabia’s Crown Prince Mohammed bin Salman is working hard to consolidate power and establish his country as the Middle East’s only hegemon. But his efforts – which include an attempt to trigger a war between Israel and Hezbollah in Lebanon – increasingly look like the work of an immature gambler.