Changing Institutions in the European Union

Changing Institutions in the European Union

A Public Choice Perspective

Edited by Giuseppe Eusepi and Friedrich Schneider

This book makes a valuable, analytical contribution to recent debates on the ongoing institutional changes occurring within the European Union. It provides a comprehensive and diverse insight into a variety of areas, including in-depth studies of fiscal, monetary and voting issues, to help elucidate the current period of transitional change.

Chapter 2: Indebtedness and deficits of the nations of the European Union

Peter Bernholz

Subjects: economics and finance, public choice theory, politics and public policy, public choice


2. Indebtedness and deficits of the nations of the European Union Peter Bernholz 1. INTRODUCTION The subject of this chapter is relatively simple. First it examines the facts concerning the development and the present state of the deficits and debts of the member states. Second, we have to ask ourselves under what conditions this situation can be maintained, in the sense that indebtedness as a percentage of GDP does not increase in the future. Related to this topic, we must ask whether the conditions of the European Stability Pact are sufficient for this purpose. Third, related to this is the question of what problems may turn up as a result of the age structure of the population and the old age pension systems. A final problem may be the costs of the enlargement of the Union. 2. THE DEVELOPMENT OF DEBTS AND DEFICITS The development of the debts and deficits of the member states as percentages of GDP during recent years is shown in Figures 2.1 and 2.2. On the whole, developments seem to be positive for the period from 1998 to 2000. Indeed, before the downturn of economic activity beginning in 2001 deficits decreased in all countries. In this sense, the Maastricht Conditions and the Stability Pact may have had a positive influence. But first, the public debts of France, Germany and Austria stagnated, and that of Greece even increased slightly. Second, the Belgian, Italian and Greek debts as a percentage of GDP...

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