THE EUROPEAN Commission has predicted Irish government debt could be among the highest in the EU by 2020.
Irish general government debt could reach a staggering 200 per cent of gross domestic product (GDP) by 2020 – eight times the figure recorded in 2007 – unless policy measures are introduced to cut spending or raise taxes.
The forecast is contained in a draft paper the EU executive is preparing for an October 1st meeting of finance ministers in Stockholm. It predicts that by 2020, debt levels could rise to 180 per cent of GDP in Britain; 125 per cent in France; 125 per cent in Italy, and 100 per cent in Germany. It highlights grave dangers facing some EU states unless they take radical action to get their budget deficits in order when the economic crisis finally ends.
One EU source said the paper was a type of “alarm call” for governments to ensure they prepare a proper strategy to cut back on the huge public stimulus efforts they have undertaken during the crisis.
A Government spokesman said commission forecasts were undertaken on a “purely mechanical and technical basis”. He said they highlighted the need for the Government to continue to implement the type of policy measures it was already undertaking.
Government debt is already rising quickly as tax revenues collapse during the crisis. In 2007, Ireland had gross debt of 25 per cent of GDP, one of the lowest in the EU. In 2008 this increased to 43 per cent of GDP, and by 2010 it is forecast to rise to 79 per cent, according to commission estimates. If debt levels were to rise to 200 per cent of GDP the creditworthiness of the country could be called into question.
Politicians from the 20 biggest world powers are expected to begin a discussion on co-ordinating exit strategies and begin reining in public debt when they meet at the G20 in Pittsburgh.
Huge uncertainties remain over public debt levels due to the extent of state guarantees and capital pumped into the banking sector. The EU executive estimates that member states have provided guarantees and capital injections worth €4 trillion – or 32 per cent of Europe’s GDP.
