According to the Commission, the EU's debt-to-GDP ratio has seen "its biggest one-year increase ever seen in peacetime," jumping from 61.5% in 2008 to 72.6% in 2009.
The ratio is projected to reach 83.7% in 2011 (88.2% in the euro area).
In the wake of the global financial crisis and the ongoing Greek debt tragedy, the European Commission and some member states are now trying to use the crisis to pass new, stricter policy measures.
"The time to be bold is now," said a Commission official.
"A debate on debt would have been taboo just one year ago. Now, we perceive a general backing which in three months could be gone again," he added.
On the explicit invitation of Germany and France (see 'Positions'), EU Economy Commissioner Olli Rehn said yesterday (5 May) that Europe needs to put "more attention on debt rather than only on deficit," presenting the Commission's quarterly European economic forecast in Brussels.
More budgetary transparency
More attention to debt means that Eurostat, the European Commission's statistical office, might be charged with "semi-auditing" tasks to monitor budget discipline not only of national governments but also of regional and local authorities, Rehn's spokesperson said.
This could prevent governments from hiding black holes in decentralised budget lines, which was partly the case with Greece, which stands accused of having lied about its accounts for years.
A new debt target?
However, more transparency is not seen as enough. In a communication aimed at strengthening the surveillance of euro area, set for publication next Wednesday (12 May), the Commission is expected to propose much tighter measures.
While details of the proposal are still being debated, Brussels is thinking of proposing a kind of infringement procedure to up the pressure on countries whose public debt is running out of control.
Indeed, most eurozone member states are currently above the 60% debt-to-GDP ceiling written into the Stability and Growth Pact, and Germany and France are in favour of tougher measures against the most indebted countries.
Under plans currently being considered by the Commission, a new absolute limit on debt or a limit on its rate of growth could be proposed. The composition of the debt could also be taken into account in order to favour countries with debts that are primarily made up of domestic household liabilities rather than those held by investment banks outside Europe.
If such a surveillance system is accepted, Greece would not be the only country to find itself under scrutiny. Italy, whose debt was estimated at 117.8% of GDP in 2009, Belgium (104%), Ireland (96.2%) and Portugal (91.1%) would all fall under fresh examination. Although Paris supports tighter rules, France itself is carrying debt of 87.6% of its GDP.
Indeed, the game is still wide open and eurozone leaders are likely to discuss the issue on Friday (7 May), said a spokesperson for the European Council.
Cutting debt requires a significant effort, including phasing out some of the economic stimulus measures adopted during the financial crisis and making major adjustments, "in many cases well beyond the benchmark of 0.5% of GDP per annum," according to the Commission.
Previous experience indicates that this would not be impossible. Before the global financial crisis, Belgium managed to reduce its debt to 84.2% of GDP in 2007, down from a peak of more than 130% in the early 1990s. The UK had a debt peak of 300% of its GDP after the Second World War, which had been gradually reduced to 33% by 1990.
Regional aid cut for offenders
Another measure being discussed, albeit not necessarily in relation to large debt, is the possibility of slashing EU regional funding to countries which regularly break the Stability and Growth Pact.
German Chancellor Angela Merkel yesterday stressed her support for this measure. "Part of these sanctions must also be suspensions from EU budget money," she said in Berlin, referring to the need for a strengthened Stability and Growth Pact.
Commissioner Rehn had already threatened to apply such sanctions in a recent speech in Brussels last April (EurActiv 15/04/10).
