Public debt ‘holding back’ economic recovery

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Mounting national deficits will hold back economic recovery in the European Union unless governments manage to reform public spending while restoring competitiveness, according to an EU business lobby.

Industry leaders are urging finance ministers, who meet today (16 March) in Brussels, to find a way to rein in public spending while creating new jobs at the same time.

The severe increase in public debt – primarily as a result of bank bailouts and stimulus spending – has left yawning holes in national balance sheets, which now represent "a major stumbling block to recovery," according to a report on fiscal sustainability and growth published by BusinessEurope.

The study acknowledges that the dramatic increase in public spending that followed the economic crisis helped to stabilise Europe's economies and staved off even more serious job losses.

However, as Europe slowly emerges into a period of burgeoning growth, business leaders worry that debts amassed over the past two years are compounding major challenges that predated the crisis – such as Europe's ageing population.

Industry wants major reforms of pension systems, including the phasing out of early retirement schemes and the promotion of private pensions, amid fears that many Europeans can expect to live for two decades after their effective retirement age.

Markus Beyrer, director-general of the Federation of Austrian Industries, said the Europe 2020 strategy will only succeed "if we manage to restore fiscal sustainability and create growth and jobs at the same time".

He said the economic crisis had wiped out 20 years of fiscal consolidation in a devastating two-year period.

The business group is also pushing for greater financial supervision from Brussels to ensure long-term budgetary discipline.

Yesterday, Eurogroup ministers discussed Greece's volatile fiscal situation and examined ways to beef up "economic governance" in the euro zone.

With Greece and the mooted European Monetary Fund (EMF) also on the agenda at the Ecofin Council this morning, BusinessEurope is calling on governments to take "necessary action to prevent the risk of sovereign default" within the EU. They call for greater surveillance of national economic policies between eurozone members.

  • 16 March 2010: Finance ministers meet in Brussels.

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