Large public debts reduce economic growth and lead to high inflation, Central Bank deputy governor Stefan Gerlach has said.

Across the euro area, average general government deficits rose from less than 1 per cent of GDP in 2007 on the eve of the financial crisis to more than 6 per cent of GDP in 2010. The average debt ratio rose from 66 per cent in 2007 to 87 per cent in 2011, according to the European Commission’s Ameco database.

Irish general government debt rose from below 25 per cent of GDP in 2007 – far below the 60 per cent limit of the Maastricht Treaty – to more than 106 per cent of GDP in 2011. It is projected to continue rising until 2013.

Mr Gerlach said weakened tax revenues, higher expenditure on unemployment support and welfare, and large bills for rescuing troubled financial institutions had led to the rapid increase in public debt. He said central banks were worried about large public debts as they tend to reduce economic growth and end in high inflation.

He added: “I do not think that economies can grow or inflate away the debt with the ease to which they may have done so in the past. This leaves primary surpluses as the only way in which debts can be reduced. Primary surpluses can be achieved either by reducing spending or by raising taxes.”