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The size and composition of government debt in the euro area

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  • Lojsch, Dagmar Hartwig
  • Rodríguez-Vives, Marta
  • Slavík, Michal

Abstract

This paper explains the various concepts of government debt in the euro area with particular emphasis on its size and composition. In terms of size, the paper focuses on different definitions that are in use, in particular the concept of gross general government debt used in the surveillance of the euro area countries, the total liabilities from the government balance sheet approach, and the net debt concept which subtracts government fi nancial assets from the liability side. In addition, it discusses “hidden debt” in the form of implicit and contingent liabilities. In terms of composition, the paper provides information about euro area government debt broken down by maturity, holder or the currency of issue. All these indicators illustrate a sharp increase in government debt in most euro area countries as a result of the crisis. This in turn has several policy implications: (i) the growing government debt ratios need to be stabilised and put on a downward path which improves market confidence; (ii) fiscal surveillance needs to put more emphasis on government debt indicators than in the past; (iii) government financial assets could play a role when analysing solvency issues; (iv) implicit and other off-balance-sheet government liabilities need to be carefully monitored and reported; (v) the gross debt concept should remain the key basis for fiscal surveillance in the EU and for the Excessive Deficit Procedure in particular; (vi) beyond the size of government debt its composition is also a key factor behind public finance vulnerabilities. JEL Classification: E31, E58, F41, P24

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Bibliographic Info

Paper provided by European Central Bank in its series Occasional Paper Series with number 132.

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Date of creation: Oct 2011
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Handle: RePEc:ecb:ecbops:20110132

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Keywords: Fiscal policies; government debt; Stability and Growth Pact.; sustainability;

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References

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  1. Kenji Moriyama & Gian-Maria Milesi-Ferretti, 2004. "Fiscal Adjustment in Eu Countries," IMF Working Papers, International Monetary Fund 04/143, International Monetary Fund.
  2. Guido Wolswijk & Jakob de Haan, 2005. "Government debt management in the euro area - recent theoretical developments and changes in practices," Occasional Paper Series, European Central Bank 25, European Central Bank.
  3. Mathias Trabandt & Harald Uhlig, 2006. "How Far Are We From The Slippery Slope? The Laffer Curve Revisited," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2006-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "The Forgotten History of Domestic Debt," NBER Working Papers 13946, National Bureau of Economic Research, Inc.
  5. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2010. "Government bond risk premiums in the EU revisited: the impact of the financial crisis," Working Paper Series, European Central Bank 1152, European Central Bank.
  6. Carmen M. Reinhart, 2010. "This Time is Different Chartbook: Country Histories on Debt, Default, and Financial Crises," NBER Working Papers 15815, National Bureau of Economic Research, Inc.
  7. International Monetary Fund, 2010. "Some Uncomfortable Arithmetic Regarding Europe’s Public Finances," IMF Working Papers, International Monetary Fund 10/177, International Monetary Fund.
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Cited by:
  1. Christophe Van Nieuwenhuyze, 2013. "Debt, assets and imbalances in the euro area. An aggregate view," Revue de l'OFCE, Presses de Sciences-Po, Presses de Sciences-Po, vol. 0(1), pages 123-152.
  2. Federico Revelli, 2012. "Business taxation and economic performance in hierarchical government structures," Working Papers, Institut d'Economia de Barcelona (IEB) 2012/12, Institut d'Economia de Barcelona (IEB).
  3. Aysan, Ahmet Faruk & Ermişoğlu, Ergun, 2013. "Eurozone Debt Crisis and its Effects on Turkish Economy," MPRA Paper 50501, University Library of Munich, Germany.
  4. Niklas Potrafke & Markus Reischmann, 2014. "Explosive Target balances of the German Bundesbank," Ifo Working Paper Series, Ifo Institute for Economic Research at the University of Munich Ifo Working Paper No. 185, Ifo Institute for Economic Research at the University of Munich.
  5. Niklas Potrafke & Markus Reischmann, 2013. "Explosive Target Balances," CESifo Working Paper Series, CESifo Group Munich 4297, CESifo Group Munich.
  6. Faruk Balli & Syed Abul Basher & Hatice Ozer Balli, 2013. "International Income Risk-Sharing and the Global Financial Crisis of 2008- 2009," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2013-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  7. David Lodge & Marta Rodriguez-Vives, 2013. "How long can austerity persist? The factors that sustain fiscal consolidations," European Journal of Government and Economics, Europa Grande, Europa Grande, vol. 2(1), pages 5-24, June.

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