European
Euro-zone and EU25 Government Deficit in 2005 fall to 2.4% and 2.3% of GDP respectively; Government debt at 70.8% and 63.4% - Ireland's debt at 27.6% of GDP; Surplus of 1%
By Finfacts Team
Apr 24, 2006, 11:14

It should be noted that, for Belgium and Greece, Eurostat has to undertake further examination of deficit and debt data. Further explanations can be found below.

In 2005 the largest government deficits in percentage of GDP were recorded by Hungary (-6.1%), Portugal (-6.0%), Greece (-4.5%) and Italy (-4.1%). Another three Member States recorded a government deficit of more than 3% of GDP: the United Kingdom (-3.6%), Germany (-3.3%) and Malta (-3.3%). Eight Member States registered a government surplus in 2005: Denmark (+4.9%), Sweden (+2.9%), Finland (+2.6%), Estonia (+1.6%), Spain (+1.1%), Ireland (+1.0%), Latvia (+0.2%) and Belgium (+0.1%). In all, eighteen Member States recorded an improved government balance relative to GDP, while seven Member States registered a worsening.

In 2005, the lowest ratios of government debt to GDP were recorded in Estonia (4.8%), Luxembourg (6.2%), Latvia (11.9%) and Lithuania (18.7%). Nine Member States had a government debt ratio higher than 60% of GDP in 2005: Greece (107.5%), Italy (106.4%), Belgium (93.3%), Malta (74.7%), Cyprus (70.3%), Germany (67.7%), France (66.8%), Portugal (63.9%) and Austria (62.9%).

In 2005, government expenditure⁴ in the euro-zone was equivalent to 47.5% of GDP, and government revenue⁴ to 45.1%. The figures for the EU25 were 47.2% and 44.9% respectively. Between 2004 and 2005 the government expenditure ratio in the euro-zone stayed the same whereas the government revenue ratio increased.

Reservations on reported data⁵

Belgium: Eurostat considers that the assumption by government in 2005 of 7400 million euro of the debt of the railway company SNCB must result, according to ESA95 rules, in a capital transfer from government to SNCB, with an impact on the government deficit by the same amount (equal to 2.5% of GDP). However, the Belgian statistical authorities have informed Eurostat of the intention of the Belgian government to introduce legislation to retroactively annul this operation. The accounting consequences of this must be clarified before the next EDP notification in October 2006.

Greece: Despite the recent improvement in the statistical processes and good co-operation between Eurostat and the national statistical authorities of Greece, issues remain related to the Greek government accounts of a structural and systemic nature. Eurostat will undertake a methodological visit⁶ in the coming weeks in order to clarify the pending issues.

Eurostat has withdrawn the reservations in the September 2005 notification (Eurostat News Release 120/2005 of 26 September 2005) concerning the Czech Republic and Portugal.

Amendments to reported data⁷

France: Eurostat has amended the deficit data notified by France for the year 2005, due to a reclassification as a capital transfer of a capital injection in the railway company SNCF, by an amount of 250 million euro (0.01% of GDP). There is no change in the reported debt figures.

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.

Other outstanding issues

Eurostat will clarify several undocumented capital injections reported by some Member States.

Eurostat will also clarify the accounting treatment, in a number of Member States, 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 Eurostat decisions on "The treatment of transfers from the EU budget to Member States" of 15 February 2005 and on "The recording of military equipment expenditure" of 9 February 2006 do not appear to have been applied correctly by a number of Member States. Eurostat will clarify this issue in the coming months.

Background

In this news release Eurostat, the Statistical Office of the European Union, is providing government debt and deficit data based on figures reported in the first 2006 notification by EU Member States for the years 2002-2005 for the application of the excessive deficit procedure (EDP). This notification is based on the ESA95 system of national accounts.

1. According to the 'Maastricht Treaty' (Protocol on the excessive deficit procedure), 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 (in nominal value). Interest data for Slovenia are not yet consolidated.

• Table of euro-zone and EU25 aggregates: the data are in euro. For those countries not belonging to the euro-zone, 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. Euro-zone: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal and Finland.
2. In the previous notification, the 2004 government deficits for the euro-zone and the EU25 were 2.7% and 2.6% of GDP respectively. The government debt of the euro-zone was 70.8% of GDP and of the EU25 63.4% of GDP. See News Release 120/2005 of 26 September 2005.
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 Commission Regulation No. 1500/2000 of 10 July 2000. It should be noted that, following an amendment to ESA95, the government balance (which may be calculated as the difference between total government revenue and expenditure) is not 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;
• 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 (0.33%), Denmark (0.21%), Finland (0.19%), Greece (0.18%), Italy (0.15%), Belgium (0.13%) and Austria (0.10%). The data reported by Slovenia and Sweden are not strictly comparable to those of the other countries, as they have reported interest on an unconsolidated basis, which results in an overestimation of government revenue and expenditure.

1. The term “reservations” is used as defined in article 8h(1) of Council Regulation 3605/93, as amended. According to the Council Regulation, the Commission (Eurostat) expresses “reservations” when it has doubts on the quality of the reported data.
2. According to Article 8d(1) of Council Regulation 3605/93 as amended, the Commission (Eurostat) shall organise methodological visits in cases 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.
3. 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 requirements of Article 8a(1).

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)

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

* Denmark reports, as government expenditure and revenue in table 2 of the annual national accounts transmission programme, data excluding the flows related to defined contribution funded pension schemes. See also annex II of this News Release.
** Data refer to calendar years. Data referring to the financial year (1 April to 31 March), that reflects specific budgetary arrangements in the United Kingdom, are shown in italics.

Annex I

Main revisions between September 2005 and April 2006 EDP notifications

The GDP notified in April 2006 for EDP purposes is the GDP with "allocation" of FISIM (Financial Intermediation Services Indirectly Measured), while in September 2005 the notified GDP was without "allocation" of FISIM. However, Cyprus reported GDP without FISIM allocated also in April 2006. FISIM allocation generally increases GDP, but has no effect on deficit and debt.

Below are shown country specific explanations for the largest revisions in deficit and debt between the September 2005 and April 2006 EDP notifications.

Deficit

Czech Republic: The significant reduction in the deficit for 2003 is mainly due to exclusion of "the maximum amount" of the guarantee (160bn CZK; 6.2% of GDP) for the Investment and Post Bank (Investiční a Poštovní banka) from the deficit.

Denmark: The increase in the surplus for 2004 is due to updated source data on taxes and current transfers.

Estonia: The reduction in the surplus for 2002-2004 is mainly due to methodological changes and to the use of different source data.

Greece: The increase in the deficit in 2004 is mainly due to a change in the working balance of the state budget and to the downward revision of the surplus of the social security funds.

Italy: The increase in deficits over 2002-2004 are related to benchmark revisions in national accounts and to updates of data sources, such as a downward revision of tax collection commissions on lotteries, a downward revision of the amounts obtained from tax amnesties and higher amounts of compensation of employees of government than previously estimated.

Luxembourg: The increase in deficit for 2004 is mainly due to VAT repayments by government.

Austria: The increase in the deficit for 2003 is largely caused by the reclassification of certain loans from state governments (Länder) to hospitals as capital transfers. This also increases the government deficit in the years 2002 and 2004, although to a lesser extent.

Portugal: The increase in the deficit for 2004 largely arises from new information on government transactions, notably at the level of local government, and from the reclassification of loans as capital transfers.

Slovenia: The increase in the deficit for 2004 is due to acquisitions of equities reclassified as capital transfers, to higher interest expenditure of the Restitution Fund and to revision of data in gross fixed capital formation and VAT.

Finland: The increase in surplus for 2004 is due to updated source data.

Sweden: The increase in the surplus for 2004 is mainly due to updated source data on taxes for central government and on intermediate consumption for local government.

United Kingdom: The increase in the deficit for 2004 is due to updated source data on tax receipts and expenditure, resulting from new information on tax accruals.

Debt

Belgium: The increase in debt over 2002-2004 is due to the reclassification of regional transport companies inside the general government sector.

Czech Republic: The significant decrease in debt from 2003 onwards is due to the exclusion of "the maximum amount" of the guarantee (160bn CZK; 6.2% of GDP) for the Investment and Post Bank (Investiční a Poštovní banka) from the debt of government. The decrease in debt in 2002 is due to the inclusion of new information on repayments of debt originating in 1998.

Latvia: The decrease in the debt for 2002 is due to changes in data sources.

Malta: The decrease in debt for 2004 is due to improved consolidation within the central government sub-sector and updated source data for extra budgetary units.

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, Slovakia and Sweden have classified their defined contribution funded pension schemes inside the government sector.

Until the expiry of the transitional period, the inclusion of the above pension schemes in general government will reduce the deficit or increase the surplus of general government and it will decrease the debt of general government. In the April 2006 EDP notification, the impact for the Member States concerned is, in percentage of GDP:

Deficit / Surplus

Debt