Analysing and Forecasting the Debt Burden of the EU Countries: Is There a New European Debt Crisis on the Horizon? (original) (raw)
Related papers
An econometric analysis of the eurozone sovereign debt crisis : the case of Greece
2012
The European sovereign debt crisis started. in 2008 with the collapse of Iceland's banking system. Subsequently, several European countries faced the implosion of financial institutions, high government debt and rapidly rising bond yield spreads in government securities. In this context, Greece is an example of a country whose government debt is a matter of grave concern since it has received the second bailout but still threatens to default. This is ironic since a developed economy like Greece is considered to aide developing economies. The main aim of this dissertation is to conduct an econometric analysis of the determinants of the Greek sovereign debt crisis while the secondary aim is an extensive literature review of the Eurozone sovereign debt crisis. Regarding the former aim, the variables selected include the government deficit, current account balance, inflation, gross savings and general government debt of Greece. This annual data (from 1976 to 2010) was collected from the World Development Indicators, European Commission data base and the International Monetary Fund. The Vector Error Correction Model framework was used to estimate our model. Also, the Granger causality analysis helped to identify the direction of causation. Furthermore, the Variance Decomposition and the Generalized Impulse Response Function were employed to analyze the shocks of all our variables on each other. Finally, for the latter aim, we critically review the evolution, causes, consequences and cures of the Eurozone sovereign debt crisis and then formulate some suggestions on how to mitigate the effects of this crisis. The results of the econometric analysis show that there is a significant negative relationship between general government debt with government deficit and inflation. However, a significant positive relationship between general government debt and current account balance was found. There is an insignificant negative relationship between gross savings and general government debt. The past value of the general government debt and government deficit has the ability to determine the present value of inflation; and in turn, pass value of inflation, can predict the present value of current account balance and gross savings. Variation in most of our variables is highly explained by our variables itself, with the exception of current account balance where variation is explained mostly by general government debt. The response of general government debt to itself is positive. Gross government debt to government deficit and general government debt to current account balance is negative. General government debt to inflation is positive. A shock of gross government debt has an increasing negative effect on gross savings over the study period. Among the causes of the Eurozone sovereign debt crisis is the rapid growth of government debt levels, trade imbalances, monetary policy inflexibility, and loss of confidence. Consequences of this crisis involve disrupted bond markets and the banking sector, depreciation of the Euro, reduced economic growth, loss of confidence, reduced remittances and tight fiscal measures. Some measures were taken and many are proposed as a cure for this crisis. This dissertation recommends that policies aimed at decreasing the level of general government debt should increase expenditure hence deficit in an income generating investment, increase inflation while decreasing current account balance.
Determinants of Government Debt in the Member States of the European Union: Sources of Fiscal Risk
Proceedings of the International Conference on Business Excellence
In times when the national economy needs increased financial support from governments, the fiscal space they have and the determinants of public debt come to the fore. Sudden increases in public spending or significant decreases in public revenue represent fiscal risks, and the level of sovereign debt is a measure to quantify fiscal risk. At international level, banking crises, government guarantees, publicprivate partnerships, companies with majority state capital, and non-performing loans are revealed by history as the main sources of financial crises and fiscal risk. This study aims to identify whether social assistance expenditures, government guarantees, public-private partnerships, non-performing loans, or tax revenues influence the evolution of the government debt of the Member States of the European Union. The data used were taken from Eurostat and were organised as panel data, the analysed period is 2010-2018. To estimate the regressions, we used the Eviews software, and th...
The Impact of Sovereign Debt Crisis on the EU Economy
Regional Economic Integration and the Global Financial System, 2000
The subprime mortgage crisis, which started in the United States in 2008, turned into a global crisis in a short time. Following the policies to reduce and mitigate the impacts of the global crisis, a sovereign debt crisis began that led to tremendous increases in government deficits and debt stock in the European Union region and made government financial systems unsustainable. This debt crisis, which started in the second half of 2009 in Greece, has resulted in a spillover effect for every EU member country. The ongoing crisis has rendered the future of Economic and Monetary Union uncertain. This chapter aims to determine the root causes of sovereign debt crisis in the EU and the economic and financial effects of and precautions for the crisis. This study also discusses the degradation of the EU's economic and political integration as a result of the sovereign debt crisis.
Public debt’s predictors in EU: evidence from members and non-members of European Monetary Union
Economic Research-Ekonomska Istraživanja
The global economic crisis destabilised the public debt of many countries. The purpose of this paper is to investigate the predictors of public debt in European Union countries divided into nonmember countries and members of the European Monetary Union in the period from 2001 to 2018. The aim is to discover their relationship with public debt and make recommendations for economic policy-makers. The empirical analysis was based on comparative research design, quantitative methodology and secondary data collection. It included 13 variables, with public debt being the dependent variable and the selected 12 economic indicators were treated as predictors. The analysis was based on a procedure for linear mixed models in the IBM SPSS. The basic finding was that only unemployment was statistically significant predictor of public debt in both groups of countries. Other predictors differed, and there were statistically significant differences in the magnitude of their impacts. Obtained results indicate that unemployment is one of the most important problems of all European Union countries. In addition, a major challenge for monetary and fiscal policy-makers will be profiling adequate tax, credit, and interest rate policies to reduce debt and accelerate economic growth.
Sovereign Debt Crisis of the Eurozone Countries
Oeconomia Copernicana, 2016
The aim of the publication is to examine the fiscal position of the euro area countries and fiscal policy architecture in Europe after the outbreak of the financial and economic crisis started in 2008. The first part of the publication consists of the analyses of the budgetary situation of euro area countries and complications with the increasing costs of servicing the public debt in the European market affected by the financial liquidity crisis. In the second section the most important changes in the framework of budgetary policies coordination process in the euro zone are presented. The final section describes the role and activities of the European Central Bank in minimising the negative consequences of the debt crisis in the euro zone.
Sustainability of government debt in the EU
2010
and the 7th Euroframe conference 'After the crisis: exit strategies for EU economies in a globalised world ', Amsterdam, June 11, 2010 This paper addresses the sustainability of government debt in Europe and is motivated by the recent debt increases following the crisis. We evaluate the sustainability in a time frame of ten years in which governments will be able to implement budget rules to get budget deficits under control. We develop a fiscal sustainability model for selected EMU member states that uses stochastic inputs based on historic data, closely following van Wijnbergen's (van Wijnbergen and Budina, 2008) approach. We simulate the development of government debt as a percentage of GDP and show its expectation value including a confidence interval for a member state conditional on deficit reduction scenarios and the behaviour of other EMU member states.
The rising public debt in the EU: Implications for Policy
Journal of Contemporary European Studies, Vol. 19, No. 1, March 2011, Special Issue: Crisis Management in Europe, 2011
The current financial and economic crisis is of unprecedented proportions and intensity. Given the piecemeal approach of the EU institutions to economic policy, their reaction to the mounting crisis has been slow and hesitant. The much feared financial meltdown in the E.U. has been avoided. However this came at the cost of increasing pressure on public finances in most member states, leading to a public debt crisis in a number of them. Financial liberalization and the lagging financial policy reform exacerbated such pressure, bringing certain member states such as Greece to the verge of default. Even more importantly, the stability of the eurozone appears to be in danger. This has led to an avalanche of new measures, including the newly instituted “European Stabilization Mechanism”, as well as proposals for the adjustment of fiscal policy co-ordination, under the general heading of “reinforcing economic governance in Europe” . Financial policy reform, on the other hand, is lagging. A new supervisory framework is being put into place, while reaction from the finance industry is delaying the reform of the regulatory framework. So, what next? Past experience confirms that a financial crisis is usually followed by a sovereign debt crisis. Is this what is happening in the EU? With what social and economic implications? Further, what are the implications of rising sovereign debt for economic policy? These are some of the questions we discuss in the present article. In particular, we examine (i) the concept of the sovereign debt and its relevance to the EU and to the eurozone; (ii) the historical experience of crises; (iii) the response of the EU to the current crisis and (iv) the prospects for policy.
This study investigates budgetary positions and trends in sovereign debt levels in two groups of EU Member States during the global financial and economic crisis. We argue that current fiscal positions and trends in sovereign debt in the Baltic states and Bulgaria are above all due to the implemented exchange rate mechanism whereas in the southern European countries and Ireland it is the institutional framework of the eurozone that plays a key role for national budgetary policies and respectively debt trends. The existence of an insurance or guarantee fund in the eurozone makes the key difference between its hardly pegged exchange rates and Currency board and has led to the loosening of fiscal discipline especially in the South Europe.
The recent sovereign debt crisis in the Euro zone: A matter of fundamentals?
Acta Oeconomica, 2015
The idea that the Euro zone sovereign debt crisis was caused by structural weaknesses degenerating into fundamental macroeconomic imbalances in the peripheral countries prevails among international institutions such as the IMF, the ECB, and the European Commission. On the contrary, some economists believe that this crisis is the consequence of major deficiencies in the architecture of economic policy making in the Euro zone that did not allow a proper response to a global systemic crisis of the financial markets that started in the United States. The objective of this paper is to provide a better understanding of the public debt dynamics in the EU, differentiating the case of Euro zone peripheral countries. We used quarterly data from 2000 to 2011 to estimate a small-scale model that takes into account the interactions between key variables. Our results do not support entirely the official view. We conclude that the cause of the adverse debt dynamics unravelling after 2007 was a sha...