The combined budget deficit of the eurozone's member governments
narrowed again in 2014, but their combined debts continued to rise
as low rates of inflation and weak economic growth damped tax
revenues.
The European Union's statistics agency said Tuesday the
eurozone's budget deficit fell to 2.4% of economic output from 2.9%
in 2013, but that additional borrowing pushed government debt up to
91.9% of gross domestic product from 90.9% in 2013.
The continued decline in budget deficits will be viewed by
eurozone policy makers as evidence that the austerity policies
pursued in response to the currency area's government debt and
banking crisis has worked.
In an interview with The Wall Street Journal, Luxembourg's
finance minister said 2014 had yielded "quite encouraging results"
for the eurozone's efforts to halt the post-crisis rise in
government debts.
"The deficit was lower than last year, so it's all going in the
right direction," said Pierre Gramegna.
However, the weakness of eurozone economic growth and the low
levels of inflation that persisted throughout 2014 made it
difficult for governments to boost their tax revenues. As a share
of economic output, they were steady at 46.6% of GDP, while
spending fell to 49% of GDP from 49.4%.
"If you have 2% to 3% inflation, your revenues go up," said Mr.
Gramegna. "In many countries, revenues are flat. That makes it
difficult to make additional savings. A better situation will allow
countries to do more. I'm optimistic on that."
With prices starting to fall in December, the European Central
Bank in January announced a program of more than one trillion euros
of mostly government bond purchases known as quantitative easing,
which it hopes will return inflation to its target of just under 2%
in 2017.
Within the eurozone there were large differences between the
financial positions of member governments. While Greece's
government managed to slash its budget deficit to 3.5% of GDP from
12.3% in 2013, its debts rose further to 177.1% of GDP from 175% in
2013, by far the highest in the currency area.
By contrast, Germany's government debt fell to 74.7% of GDP from
77.1% in 2013, having run a budget surplus for the third straight
year.
Rejecting further austerity, Greeks in January voted in a
left-of-centre government that is seeking to renegotiate the terms
of bailout loans provided by the EU and the International Monetary
Fund.
The Greek vote has proved the most significant protest against
the eurozone's strategy for confronting its government debt and
banking crises to date, but pushed the Greek government to the
brink of a default on its debts.
U.S. Treasury Secretary Jacob Lew said on Friday, following a
meeting with Greek Finance Minister Yanis Varoufakis, that Greece
and its creditors have "no time to waste," warning another crisis
would hit Greece and the European economy hard.
Write to Paul Hannon at paul.hannon@wsj.com
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