EU austerity has yet to cut debt

LONDON - Europe’s debt dynamics keep getting worse in spite of years of cost-cutting and tax increases designed to return public finances to health.

Official figures released Monday show that the debt burden of the 17 European Union countries that use the euro hit all-time highs at the end of the first quarter even after spending cuts and tax increases were introduced to rebalance the governments’ books.

Eurostat, the European Union’s statistics office, said government debt as a proportion of the total annual gross domestic product of the eurozone rose to a record 92.2 percent in the first quarter of 2013, from 90.6 percent the previous quarter and 88.2 percent in the same period a year ago.

Battered by a global recession, a banking crisis and in some cases lax financial management, a number of eurocountries such as Greece have been forced to take remedial action to deal with their debt in return for multibillion bailout loans.

One side effect of the austerity measures has been to keep a lid on economic growth - government spending is a key component of the economy while tax increases can choke consumption and investment. Many euro countries are actually in recession - shrinking economies can make the debt-to-GDP ratio look less favorable.

The hope of those who have advocated austerity as the main response to Europe’s debt crisis is that economic growth will start to emerge as soon as countries pare their borrowing to manageable levels. Greece, for one, is expected to start posting growth next year while recording a primary surplus- the annual budget excluding debt-related payments - after years of savage austerity that’s contributed to a near six-year recession and unemployment of around 27 percent.

Greece, which in 2009 became the first euro country to suffer a loss of investor confidence over the state of its public finances, has the highest debt burden in the eurozone at 160.5 percent. That’s up from the previous quarter’s 156.9 percent and from the previous year’s equivalent 136.5 percent.

The second-highest debt-to-GDP ratio in the eurozone is Italy’s 130.3 percent. Though Italy has not needed a financial rescue like Greece, Ireland, Portugal, Spain and Cyprus, its government has pursued a raft of measures to make sure its investors are happy to keep lending money so it can service its $2.64 trillion debt on its own.

Across the eurozone, total debt stood at $11.4 trillion at the end of the first quarter, up from $11.3 trillion the previous quarter and $11 trillion the year before.

It’s not just the euro countries that are suffering a debt overhang. Across what was then the 27-country European Union, which includes non-euro countries such as Britain and Poland, the debt burden rose to 85.9 percent at the end of the first quarter from 85.2 percent the previous quarter and 83.3 percent the year before. Total debt stood at $14.6 trillion.