Eurozone countries in blue - rest of EU25 in pink

In 2005 the government deficit¹ of both the eurozone² and the EU25 fell compared to 2004, while the government debt¹ increased. In the eurozone the government deficit decreased from 2.8% of GDP in 2004³ to 2.4% in 2005, and in the EU25 it fell from 2.7% to 2.3%.

In the eurozone the government debt to GDP ratio rose from 69.8% in 2004 to 70.8% in 2005, and in the EU25 from 62.4% to 63.2%.

In 2005 the largest government deficits in percentage of GDP were recorded by Hungary (-6.5%), Portugal (-6.0%), Greece (-5.2%) and Italy (-4.1%). Another five Member States also recorded a government deficit of more than 3% of GDP: the Czech Republic (-3.6%), the United Kingdom (-3.3%), Germany (-3.2%), Malta (-3.2%) and Slovakia (-3.1%). Seven Member States registered a government surplus in 2005: Denmark (+4.9%), Sweden (+3.0%), Finland (+2.7%), Estonia (+2.3%), Spain (+1.1%), Ireland (+1.1%) and Latvia (+0.1%). In all, fifteen Member States recorded an improved government balance relative to GDP in 2005 compared to 2004, while nine Member States registered a worsening and in one case it stayed unchanged.

It should be noted that Denmark, Hungary, Poland and Sweden are at present benefiting from a transitional period of implementation of Eurostat's decision on classification of funded pension schemes, which has the effect of temporarily improving their deficit/surplus. From April 2007 the derogation will come to an end and the defined contribution funded pension scheme in these four countries will have to be classified outside the government sector. For further information and for quantification of the effect of the derogation, please see annex II.

In 2005, the lowest ratios of government debt to GDP were recorded in Estonia (4.5%), Luxembourg (6.0%), Latvia (12.1%) and Lithuania (18.7%). Nine Member States had government debt ratios higher than 60% of GDP in 2005: Greece (107.5%), Italy (106.6%), Belgium (93.2%), Malta (74.2%), Cyprus (69.2%), Germany (67.9%), France (66.6%), Portugal (64.0%) and Austria (63.4%).

In 2005, government expenditure⁴ in the eurozone was equivalent to 47.5% of GDP, and government revenue⁴ to 45.1%. The figures for the EU25 were 47.1% and 44.8% respectively. Between 2004 and 2005 the government expenditure ratio in the eurozone decreased while the government revenue ratio increased.

Reservations on reported data⁵

Eurostat has withdrawn the reservations on reported data of the April 2006 notification (Eurostat News Release 48/2006 of 24 April 2006) concerning Belgium. The reservation was withdrawn following amendment of the data for the year 2005 (see below, "Amendments by Eurostat to reported data").

Eurostat has also withdrawn the reservation on reported data of the September 2005 notification and April 2006 notification (Eurostat News Releases 120/2005 of 26 September 2005 and 48/2006 of 24 April 2006) concerning Greece. This is due to clarification of the issues concerning the recording of transactions with the EU budget, the accounts of social security and the amounts of other receivables and payables for the years 2002-2005 (see below "Other issues").

Amendments by Eurostat to reported data⁶

Belgium: Eurostat has amended the deficit and debt data notified by Belgium for 2005 in relation to the assumption by government (FIF - Fonds de l'infrastructure ferroviaire) in 2005 of 7 400 million euro (2.5% of GDP) of the debt of the railway company SNCB. According to ESA95 rules, the impact on the government deficit is of the same amount; the impact on the government debt at the end of 2005 amounts to 5 200 million euro (1.7% of GDP).

United Kingdom: Eurostat has amended the data notified by the United Kingdom for years 2002 to 2005 for consistency of recording of UMTS licence proceeds. This leads to an increase in the government deficits for 2002, 2004 and 2005 (as well as for financial years 2002/03, 2004/05 and 2005/06) by GBP 1 045 million (0.1% of GDP) and for 2003 (financial year 2003/04) by GBP 1 044 million (0.1% of GDP). There is no change in the reported debt figures.

Greece: Eurostat is using for the purpose of this EDP notification the GDP figures notified in April 2006, and not the revised GDP data reported by the Greek authorities on 1 October 2006. Given the magnitude and complexity of the revised GDP data (an increase of 25% compared to the old figures), Eurostat will carry out a complete verification of GDP data once Greece has delivered a full inventory of the sources and methods used for the new calculations.

Other issues

As far as Greece is concerned, a methodological visit⁷ carried out in June 2006 and September 2006 clarified the pending issues mentioned in the Eurostat News Releases of 26 September 2005 and 24 April 2006, concerning the recording of transactions with the EU budget, the accounts of social security and the amounts of other receivables and payables for the years 2002-2005, and resulted in a revision of Greek deficit data (see Annex I of this press release). The increase in government deficit for Greece was equal to 0.3% of GDP in 2002 and 2003, 0.9% in 2004 and 0.7% in 2005. The methodological visit will be finalised by the establishment of an action plan for the improvement of Greek government finance statistics, to be carried out during the course of next years, agreed between Eurostat and the Greek statistical authorities.

As announced in April 2006, Eurostat is currently discussing with the relevant technical working groups the accounting treatment to be applied to the following issues: securitisation operations undertaken by government, classification of payments for the use of roads, sales or transfers of impaired government claims (notably in the case of foreign claims) and payments in connection with the transfer of pension commitments to government.

In addition, the application of the Eurostat decision on "The treatment of transfers from the EU budget to Member States" of 15 February 2005 (Eurostat News Release 22/2005) is under investigation for a number of Member States.

Furthermore, Eurostat's decision on "The recording of military equipment expenditure" of 9 March 2006 (Eurostat News Release 31/2006) does not seem to have been fully applied by Germany and Greece.

Background 

1. According to the Protocol on the excessive deficit procedure annexed to the EC Treaty, government deficit (surplus) means the net borrowing (net lending) of the whole general government sector (central government, state government, local government and social security funds). It is calculated according to national accounts concepts (European System of Accounts, ESA95). Government debt is the consolidated gross debt of the whole general government sector outstanding at the end of the year (at nominal value).

• Table of eurozone and EU25 aggregates: the data are in euro. For those countries not belonging to the eurozone, the rate of conversion into euro is as follows:

- for deficit / surplus and GDP data, the annual average exchange rate;

- for the stock of government debt, the end of year exchange rate.

• Table of national data: these are in national currencies.

1. Eurozone: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal and Finland. Slovenia will join the eurozone on 1 January 2007.
2. In the previous notification, the 2005 government deficits for the eurozone and the EU25 were 2.4% and 2.3% of GDP respectively. The government debt of the eurozone was 70.8% of GDP and of the EU25 63.4% of GDP. See News Release 48/2006 of 24 April 2006.
3. Government expenditure and revenue are reported to Eurostat under the ESA95 transmission programme. They are the sum of non-financial transactions of the general government accounts, and include both current and capital transactions. For definitions, see Council Regulation No. 2223/96, as amended. It should be noted that the government balance (i.e. the difference between total government revenue and expenditure) is not the exactly the same under ESA95 as that of the excessive deficit procedure. Regulation (EC) No 2558/2001 on the reclassification of settlements under swaps agreements and forward rate agreements implies that there are two relevant definitions of government deficit/surplus:

• The ESA95 definition of net lending /net borrowing does not include streams of payments resulting from swap agreements and forward rate agreements, as these are recorded as financial transaction;
• For the purpose of the excessive deficit procedure, net lending /net borrowing of general government includes streams of interest payments resulting from swap and forward rate agreements.

Concerning 2005, for most Member States the difference, if any, between the two balances is minor except in Sweden (0.24%), Denmark (0.21%), Finland (0.19%), Greece (0.18%), Italy (0.15%), Belgium (0.13%) and Austria (0.11%). These differences improve net lending/net borrowing for EDP purposes for all countries except in the case of Greece. The data reported by Sweden are not strictly comparable to those of the other countries, as Sweden reports interest on an unconsolidated basis, which results in an overestimation of government revenue and expenditure; however, this has no consequences on the government balance and debt.

1. The term “reservations” is defined in article 8h(1) of Council Regulation 3605/93, as amended: the Commission (Eurostat) expresses reservations when it has doubts on the quality of the reported data.
2. According to Article 8h(2) of Council Regulation 3605/93 as amended, the Commission (Eurostat) may amend actual data reported by Member States and provide the amended data and a justification of the amendment where there is evidence that actual data reported by Member States do not comply with the quality requirements (compliance with accounting rules, completeness, reliability, timeliness and consistency of statistical data).
3. According to Article 8d and 8e(1) of Council Regulation 3605/93 as amended, the Commission (Eurostat) shall ensure a permanent dialogue with Member States and regularly carry out dialogue visits and methodological visits. The methodological visits take place where substantial risks or potential problems with the quality of data are identified, especially as they relate to the methods, concepts and classification applied to the data, which Member States are obliged to report.

GDP, deficit/surplus and debt in the EU (in national currencies)

GDP, deficit/surplus and debt in the EU (in national currencies)

GDP, deficit/surplus and debt in the EU (in national currencies)

GDP, deficit/surplus and debt in the EU (in national currencies)

* Belgium has reported government expenditure and revenue data without taking into account the assumption by government in 2005 of
7 400 million euro of debt of the railway company SNCB. For consistency reasons Eurostat has adjusted these figures.

** Denmark reports government expenditure and revenue data excluding the flows related to defined-contribution funded pension schemes. However, such flows have been taken into account for the compilation of the government surplus. See annex II of this News Release. For consistency reasons Eurostat has adjusted these figures.

*** Hungary reports for EDP purposes the defined-contribution funded pension schemes inside government, but they are reported outside government in the context of the updated stability programme submitted to DG ECFIN for forecast purposes. See annex II of this News Release.

**** Data refer to calendar years. Data referring to the financial year (1 April to 31 March), which reflects specific budgetary arrangements in the United Kingdom, are shown in italics.

Annex I

Main revisions between April 2006 and October 2006 notifications

GDP

The GDP notified in October 2006 for EDP purposes was revised by small amounts compared to the GDP notified in April 2006 for the reporting period 2002-2005, most notably by Estonia, Cyprus, Hungary and Malta. Changes in GDP affect deficit and debt ratios due to a denominator effect. The revision of the GDP for Greece is still under investigation, owing to the exceptional size of the revision. In effect, there are high statistical uncertainties about these revised GDP data, which require a complete verification by Eurostat once Greece has delivered a fully revised inventory of the sources and methods used for the new calculations.

Below are shown country specific explanations for the largest revisions in deficit and debt between the April 2006 and October 2006 EDP notifications.

Deficit

Czech Republic: The increase in deficit for 2005 is mainly due to new information on taxes and on gross fixed capital formation.

Estonia: The decrease in surplus in 2002-2003 and the increase in surplus in 2004-2005 reflect a national accounts revision and is mainly due to new information on foreign aid and to changes in net borrowing or net lending of other central bodies and local government.

Greece: The increase in deficit in 2002-2005 is mainly due to reduction of surpluses of other central government bodies and social security funds (corrections for transfers received from the ordinary budget in 2002-2005, and change in data sources in 2005).

Luxembourg: The significant reduction in deficit in 2005 is explained by new information on taxes and some minor reclassification issues.

Hungary: The increase in deficit in 2005 is mainly due to new and updated source data.

Slovenia: The decrease in deficit in 2005 is due to a revision of the profit tax for companies and of other accrual adjustments, as well as to revised GFCF data.

Slovakia: The increase in deficit in 2005 is mainly due to the exclusion of the defined-contribution funded pension scheme outside the general government sector (-0.6% of GDP), partially compensated by better collection of taxes than estimated.

United Kingdom: The revision in deficit in 2005 is due to better estimates of central government gross fixed capital formation, resulting from the transition to a new government department reporting system.

Debt

Estonia: The increase in debt in 2002 is mainly due to the availability of new data sources, which lead to a reclassification of loans both in central and local government.

Slovenia: The decrease in debt in 2002-2005 is due to consolidation of debt (i.e. government debt held by government).

Finland: The increase in debt in 2005 is mainly due to a new estimate of the amounts consolidated (mainly central government bonds held by social security).

Annex II

Classification of funded pension schemes in case of government responsibility or guarantee

On 2 March 2004 Eurostat published a decision on classification of funded pension schemes in case of government responsibility or guarantee (News Release 30/2004). As announced on that occasion, Eurostat organised bilateral discussions with several Member States on the implementation of the decision. In the context of these discussions, it appeared that some Member States might need a transitional period to implement the decision and to avoid disruptions in the conduct of their budgetary policies. This transitional period will expire with the notification of April 2007. Therefore, all Member States will have to abide by the decision in the context of the April 2007 EDP notification at the latest. At present, Denmark, Hungary, Poland and Sweden have classified their defined contribution funded pension schemes inside the government sector.

By April 2007, the government deficit and debt figures in these countries will have to be revised upwards (or surplus revised downwards) by the following amounts:

Deficit / Surplus

Debt