Euro-Area Debt Reaches Record 85.4% of GDP as Turmoil Deepens

Government debt in the euro area swelled to a record last year, complicating the efforts of nations in the region to stem Europe’s fiscal crisis.

All 16 countries that were using the euro last year increased their debt load, boosting the region’s average to 85.4 percent of gross domestic product from 79.8 percent in 2009, the European Union’s statistics office in Luxembourg said today. The reading exceeded an 85.1 percent estimate published in April.

Budget deficits and bank-recapitalization costs may push government borrowing “significantly higher” in an environment of low economic growth or a recession, Standard & Poor’s said in a report today. European leaders have pushed out an Oct. 23 deadline for deciding on how to bolster the firepower of the region’s rescue fund after France and Germany said more time was needed for negotiations.

Officials are discussing merging the 440 billion-euro ($604 billion) European Financial Stability Facility with the European Stability Mechanism, which had been intended to replace the EFSF in 2013, according to two people familiar with the talks. The EFSF, which is funded by bonds guaranteed by governments, has already spent or committed about 160 billion euros, including loans to Greece due in up to 30 years. The ESM will operate with paid-in capital.

Euro-area countries pared their overall budget deficit to 6.2 percent of GDP in 2010 from 6.4 percent in the prior year. The region’s largest deficits were in Ireland, at 31.3 percent, and Greece, at 10.6 percent.

The countries with the highest ratios of government debt to GDP were Greece at 144.9 percent, and Italy at 118.4 percent.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net