Which EU countries have the most debt cuts?

Debt relief often requires painful cuts and tax increases. Most of the time, he does not come to terms with citizens’ understanding, and the government, which introduces austerity measures, often pays his head for his courage. Nevertheless, even in Europe, we find countries that have reduced their public debt relative to GDP very significantly compared to the period of economic crisis. Some states have even less public debt than before the economic crisis. Which states are they? And how is the Czech Republic doing this?

EU public debts have been put to the test during the economic crisis, with public finances recovering for at least the next few (maybe tens) years. We can hope that the governments of the countries most concerned (Greece, Portugal, Ireland, Italy, etc.) have learned and started to squeeze public debts. It doesn’t look so much so far, but on a few occasions today, we’ll show that if it wants to, it goes. Which countries are even better off than before the crisis? How about the Czech Republic, Slovakia, and Germany?

Norway – Debt Tamer?

Norway - Debt Tamer?

In the last 10 years, they have been most likely to reduce their public debt to GDP ratio in Norway, but it is not a member of the EU but is very integrated with it. He is a member of the European Economic Area and also a member of the Schengen area. Norway pushed the debt by more than 28 pp, in the third quarter of 2007 the public debt was about half of Norway’s GDP and in the third quarter of 2017 it was 15 pp less – about 35% of GDP. What is the success of Norway? As you know, Norway is one of the most advanced economies in the world, which, moreover, benefits from huge natural resources that employ many Norwegians and fairly fill the Treasury (oil, gas, fishing, logging, cheap power generation through hydropower). Thanks to these revenues, Norway can afford a large welfare state, a high level of redistribution, social benefits and free services paid by the state. Norway is strongly linked to the EU, but its citizens have twice refused entry into the EU in the referendum, and about 70% of Norway’s population is now against entry.

Which EU countries have managed to reduce their debt in 10 years?

Which EU countries have managed to reduce their debt in 10 years?

Only two EU countries have managed to reduce their public debt-to-GDP ratio (compared to data ten years ago). Most of the EU countries managed to squeeze public debt in relation to Malta’s GDP. Malta shows the way to other countries of southern Europe that even if they have high public debt and the euro introduced, the cuts can be used to reduce the debt effectively. However, Malta has one big advantage in addition to other southern European countries, namely strong GDP growth, which was 8.3% of GDP in 2014. They can only dream of such results in Greece and Spain. In addition to the high unemployment rates of Greece and Spain, the number of unemployed Maltese looks like a handful – in December 2017, unemployment in Malta was about 3.6%, the third-lowest rate in the Czech Republic and Germany. For comparison, unemployment in Greece and Spain was 20.7% and 16.4%, respectively (which is at the very end of the EU).

The ranking of EU and EEA countries ranked according to the largest public debt reduction between 2007 and 2017

Order Country GDP in the third quarter of 2017 Comparison of public debt in relation to GDP between the 3rd quarter of 2007 and the 3rd quarter of 2017 Comparison of public debt in relation to GDP between 3Q 2012 and 3Q 2017 Comparison of public debt in relation to GDP between the 3rd quarter of 2016 and the 3rd quarter of 2017
1 Norway 35.1% -15,1% +6,2% +0,3%
2 Malta 54,9% -6.5% -14,1% -4.4%
3 Sweden 38,6% -0.8% +1.2% -3.2%
4 Germany 65.1% +1.0% -14,9% -4.1%
5 Austria 80.4% +5,3% -1.9% -2,3%
6 Estonia 8.9% +5,6% -0.5% -0.6%
7 Hungary 72.4% +7,4% -4.8% -2.7%
8 Poland 52.0% +7,7% -1.7% -1,2%
9 Denmark 36,9% +7,8% -9.8% -1.9%
10 Czech Republic 35.1% +8,0% -9,2% -3.1%
11 Bulgaria 25.6% +8,4% +8,0% -2.9%
12 Netherlands 57.0% +12,8% -8.0% -4.5%
13 Belgium 107.0% +14,6% +0,6% -1.8%
14 Luxembourg 23,4% +15,6% +1.4% +1.8%
15 Slovakia 51.3% +20,5% -0.3% -1,4%
  Eurozone 88,1% +21,5% -0.8% -1,6%
  European Union 82.5% +23,7% -1,2% -0.4%

Another EU country that has reduced its public debt to GDP in Sweden, which has a very stable public debt-to-GDP ratio over the long term. If we look at the reduction of the public debt ratio to GDP, it is worth mentioning our big neighbor, Germany, which has reduced this share by almost 15 pp in five years. Germany’s debt was 80% in times of crisis and bad language predicted Germany more debt. Angela Merkel’s government, however, managed to reduce the public debt ratio to around 65% of GDP (even thanks to a decent economy and higher tax collection). We should also mention other European powers – France and Great Britain, which continue to increase public debt to GDP (by 32.6 pp to 98.4% of France’s GDP, or 45.4 pp to 87.2% of GDP of Great Britain). 

In comparison with the third quarter of 2012 with the same quarter of 2017, 14 EU countries managed to reduce their public debt to GDP ratio and compared to the previous year, 24 EU countries reduced their share of public debt to GDP. This shows an effort to reduce public debt, but Greece and Italy, the two countries with the highest debt, continue to face a rise in the public debt-to-GDP ratio.

Czech Republic – by GDP growth to reduce debt

Czech Republic - by GDP growth to reduce debt

Thanks to strong GDP growth, the Czech Republic is reducing the share of public debt to GDP and still fulfills this part of the criteria. And even though the CSSD, ANO and KDU-CSL government planned deficit budgets throughout the parliamentary term, which was not always confirmed due to a well-timed economy and EU revenues (for example in 2016).

Greece, Portugal, and Spain on the tail

Greece, Portugal, and Spain on the tail

Unfortunately, our favorite holiday destinations are steadily on the top of the EU’s most indebted countries, and together with Slovenia, they form a group of countries with more than half of their GDP in debt. We wrote about the most indebted EU countries in our previous article. On the other hand, the least indebted country is Estonia, one of the most progressive developing EU countries. You can also read about the other least indebted EU countries on our website. In addition, we also looked at the world power indebtedness, which is also not negligible. However, we must note that this is always a debt structure. There is a difference when public debt is owned by the country’s inhabitants (eg Japan) or foreign states (eg Greece).

We can only hope that European politicians will manage to tame the high public debts in their countries because the next economic crisis can come quickly and without invitation. And that in the south of Europe could begin to spread the dark shadow of bankruptcy

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