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Public Debt Sustainability Analysis: Eu Case

Author

Listed:
  • Nicolescu Cristina

    () (West UNiversity of Timisoara, of Economics and Business Administration)

  • Pirtea Marilen

    () (West UNiversity of Timisoara, of Economics and Business Administration)

  • Botoc Claudiu

    () (West UNiversity of Timisoara, of Economics and Business Administration)

Abstract

The global crisis has caused a serious fiscal deterioration that leaves the world economy with serious challenges. In many developed markets as well as in a few emerging markets (Emerging markets) public finances have already become, or are at least at risk of becoming, unsustainable. Commonly, public debt sustainability is defined as a sovereign's ability to service debt without large adjustments to public revenue and/or expenditure and without ever-increasing public-debt-to-GDP ratios. Hence, this definition refers to both a country\'s ability and willingness to repay its debt. We also have to add the fact that there isn`t an universal accepted definition of fiscal or debt sustainability. In light of the growing public debt, the issue of debt sustainability has increasingly attracted attention. In this paper we analyse public debt sustainability scenario in EU economies. At least half of the EU countries will have to implement stringent fiscal consolidation programmes over the next few years in order to prevent already high public-debt-to-GDP ratios from a further significant rise, also the case of Romania. However, drastic fiscal policy adjustment may be not feasible in the short term and hence public debt is likely to grow further. In some scenarios the public-debt-to-GDP ratio is predicted to soar to 133% in 2020, from just over 100% in 2010. By contrast, nearly all EM countries, including major economies, appear to be well positioned to stabilise or even outgrow their current debt ratios without drastic fiscal adjustment. Institutional improvements may help European countries to maintain fiscal credibility. In light of the future fiscal challenges, many European governments may introduce new or more effective national debt limits, similar to those put in place in the past with good results by some Emerging markets. Such institutional reforms could help to insulate fiscal policies from political pressure and to anchor financial market expectations.

Suggested Citation

  • Nicolescu Cristina & Pirtea Marilen & Botoc Claudiu, 2011. "Public Debt Sustainability Analysis: Eu Case," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 409-415, July.
  • Handle: RePEc:ora:journl:v:1:y:2011:i:1:p:409-415
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    File URL: http://anale.steconomiceuoradea.ro/volume/2011/n1/034.pdf
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    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 1-74.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, pages 573-578.
    3. Vincent Koen & Paul van den Noord, 2005. "Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting," OECD Economics Department Working Papers 417, OECD Publishing.
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    Cited by:

    1. Eva Lajtkepová, 2016. "Differences And Similarities In The Indebtedness Of Eu Member States After Last Financial Crisis," Oeconomia Copernicana, Institute of Economic Research, pages 551-563.
    2. Helder Mendon├ža & Felipe Tostes, 2015. "The Effect of Monetary and Fiscal Credibility on Exchange Rate Pass-Through in an Emerging Economy," Open Economies Review, Springer, pages 787-816.

    More about this item

    Keywords

    public debt; fiscal policy; fiscal sustainability; GDP; fiscal consolidation;

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H69 - Public Economics - - National Budget, Deficit, and Debt - - - Other
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H59 - Public Economics - - National Government Expenditures and Related Policies - - - Other

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