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| The Public Debt Issue in Europe |
| (2011-09-15) |
| Last updated: 2011-09-16 15:13 EET |
The European Union will continue to support Greece, the German and French heads of state say, amid fears that the country might collapse financially under the burden of huge public debt. Italy is also suffering from its own public debt, but not to the scale of the one carried by Greece.
Wednesday’s teleconference between French president Nicolas Sarkozy, German chancellor Angela Merkel and Greek PM Giorgios Papandreu came just in time to simmer down the turbulence caused by Greece’s financial situation. The talks were preceded by alarming declarations on the possibility that Greece might default on its debt and on the dramatic consequences a break in the Eurozone might have on the European Union.
At the end of the conference however, Angela Merkel and Nicolas Sarkozy gave assurances that Greece has a future with the EU, while Giorgios Papandreu reiterated his government’s determination to fulfill its commitments. The release of future installments of Greece’s IMF loan depends on the firm and swift enforcement of the recovery program agreed upon with the international lender. The three leaders underlined that commitment to these obligations is vital if Greece wants to get back on track towards sustainable and balanced growth.
A successful recovery program would also stabilize the Eurozone. With a huge public debt worth 160 percent of the national GDP, and therefore dependent on international financial loan, the Greek state has become the main source of skepticism for many analysts as regards the future of the common currency and even for the European Union as an economic and political entity. Greece is not the only EU country forced to take measures to get back on the financial floating line.
Italy, the Eurozone’s third largest economy, boasts public debt worth 120 percent of the GDP. Italian deputies have agreed on an austerity plan worth more than 54 billion euros. The plan, subsequently approved by the Senate, will raise the VAT by 1 percent and will feature drastic state and local community budget cuts. New wealth taxes and bigger taxation on financial earnings are also expected. The retirement age for employees in the private sector will be raised from 60 to 65, as of 2014.
The plan approved by the Italian parliament also includes measure to fight tax evasion, causing estimated losses of 120 billion dollars. Contested by the unions but demanded by the Central European Bank, the plan, aimed at consolidating and balancing the budget by 2013, comes amid the publishing of polls that analysts say illustrate the increasing poverty of the middle class. The Financial Times wrote that in this age of austerity looming over Europe, Italy is saying “Ciao, dolce vita!”.
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