The euro area has done extraordinarily well for itself by bumping down its government deficit. In 2024, it decreased again by 0.4 percentage points to -3.1% of GDP. This positive sign is a reflection of the improving overall fiscal health across the entire region. The hurdles remain high, especially for some of the member states which posted the most pronounced deficits in that 2023 stretch.
According to recent data, half of the countries within the Eurozone reported a decline in their fiscal deficits last year. In the period leading up to the Eurozone Crisis, countries like Italy and Greece were able to get their fiscal houses in order, with both countries running primary surpluses. In actual terms, Italy delivered only a small primary surplus of +0.5% of GDP, while Greece of all countries produced an astounding primary surplus of +4.8% of GDP! Few countries in the world have made such effective concerted effort at reducing their public debt ratio as Greece did. Instead, it fell by 10 percentage points, to 153.6% for 2024.
Despite these gains, many countries are still facing a fiscal squeeze that risks choking off recovery in the Eurozone. The latest to announce such a ratcheting upward of their deficits has been France, Austria, Belgium and most recently, Finland. In 2024, France’s fiscal stance worsened by 0.4 pp. to -5.8%. In comparison, Austria saw a much larger increase by 2.1 percentage points, increasing its deficit to -4.7%. Belgium’s deficit increased by 0.4 percentage points to -4.5%, and Finland’s deficit rose by 1.4 percentage points to -4.4% of GDP.
Spain followed with a modest narrowing of its deficit. The deficit decreased by 0.3 percentage points, down to a -3.2% of GDP in 2024.
The soaring deficits in these nations have kicked off fears as to the longer term financial viability of the Eurozone. In France, Austria, Belgium and Finland, analysts say fiscal tightening will weigh on growth and threaten a fragile recovery. By extension, this would go a long way towards capping the full economic recovery—direct and indirect—of the entire region.
As a result, Italy and Greece are today facing the highest debt interest payments as a share of GDP in the Eurozone. Italy’s payments are equal to 3.9% of GDP, while Greece’s are 3.5%. It is illustrative of a deeper, long-standing dilemma in balancing the need to service public debt with the desire for fiscal sustainability.