WASHINGTON — Europe has endured layoffs, wage cuts and tax increases to bring government debt under control. So where’s the gain?
Far from falling, debt burdens are rising fastest in European countries that have enacted the most draconian austerity programs, according to The Associated Press’ Global Economy Tracker, which monitors the performance of 30 major economies.
The numbers back up what many analysts say: Austerity can be counterproductive and even make a country’s debt load grow.
Many fear the cutbacks will cause Europe to sink into a self-defeating spiral: Higher debt leads to harsher austerity, growing social instability and deeper economic problems. Governments could find it even harder to pay their bills.
The pain is already intense. Portugal’s unemployment hit a record 14 percent at the end of last year. Ireland’s economy contracted a worse-than-expected 1.9 percent in the July-September quarter of 2011.
Under a deal approved Tuesday by the 17 countries that use the euro and the International Monetary Fund, Greece will get a $172 billion bailout in exchange for accepting another dose of austerity that includes laying off 15,000 civil servants and slashing the minimum wage 22 percent.
Progress has been made in the bond market, where interest rates on government bonds have declined. That’s made it cheaper for some indebted countries to borrow.
But the drop in rates might not last. And the lower rates probably have less to do with budget cutting than with what the countries’ central banks are doing: They’re buying bonds, which pushes down rates, and providing low-cost loans for banks to do the same.
The best way to compare debts among countries is to look at government debt as a percentage of gross domestic product. A percentage over 90 is considered bad for an economy’s health. The AP’s Global Economy Tracker found:
• Portugal cut pensions, reduced public servants’ wages and raised taxes starting in 2010. Yet in the third quarter of 2011, government debt equaled 110 percent of GDP, up from 91 percent a year earlier.
• In Ireland, middle-class wages have been reduced 15 percent and the sales tax boosted to 23 percent (the highest in the European Union). But its debt amounted to 105 percent of economic output in the third quarter of last year; a year earlier, it was 88 percent.
• In Britain, Prime Minister David Cameron staked his political future on his austerity plan. Government debt ratios, though, reached 80 percent in the third-quarter of 2011, up from 74 percent a year earlier.
• In Greece, two years of austerity programs have devastated the economy. The government’s debt equaled 159 percent of the country’s GDP in the July-September quarter of 2011. That was up from 139 percent a year earlier.
Norway, by contrast, has a strong economy and has avoided painful austerity measures. Its debts dropped to 39 percent of GDP in the third quarter, from 43.5 percent in the same quarter of 2010.
Researchers at the Kiel Institute for the World Economy estimate Greece would have to turn its annual deficit – now about 5 percent of GDP before debt payments – into a daunting surplus of around 30 percent of GDP to return to financial health.