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Euro-Region Debt Rises to Highest in Currency’s History

The debt of the euro region rose last year to the highest since the start of the single currency as governments increased borrowing to plug budget deficits and fund bailouts of fellow nations crippled by the fiscal crisis.

The debt of the 17 euro nations climbed to 87.2 percent of gross domestic product in 2011 from 85.3 percent the previous year, official European Union figures showed today. That’s the highest since the euro was introduced in 1999. Greece topped the list with debt at 165.3 percent of GDP, while Estonia had the least at 6 percent of GDP.

Euro-region nations are on the hook for the bulk of the 386 billion euros ($508 billion) in bailouts for Greece, Ireland and Portugal after those nations were forced to seek rescues when their borrowing costs become unsustainable. Concern that Spain and Italy may follow has led their bonds to decline for six weeks, pushing yields toward the 7 percent level that triggered the other aid programs.

“The different debt trajectories of the euro-area countries crystallize the process of great divergence between the periphery and the core of the euro area and even more markedly between Germany and the rest of the region,” Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London, said by phone.

Italy, Spain

The yield on Italy’s 10-year bond was up 6 basis points at 5.72 percent at 2:00 p.m. Rome time, pushing the difference with German securities to 406 basis points. The Spanish 10-year yield rose 2 basis points to 5.98 percent.

Italy ended last year with the second-highest debt at 120.1 percent of GDP. Spain’s rose to 68.5 percent from 61.2 percent.

Germany posted one of the only declines, with its debt shrinking to 81.2 percent from 83 percent, Eurostat said in the report. Only five euro-region nations -- Estonia, Luxembourg, Slovenia, Slovakia and Finland -- had debt within the euro- region’s limit of 60 percent of GDP.

The cost of the bailouts in 2011 ran as high as 1 percent of GDP in the case of Malta, with Germany, Italy and Spain paying 0.8 percent and France contributing 0.7 percent, the report showed.

The region’s overall budget deficit declined to 4.1 percent of GDP from 6.2 percent as nations from Greece to Spain and France implemented austerity measures aimed at stopping the spread of the debt crisis and convincing investors that Europe can shore up its public finances.

Ireland

Ireland posted the biggest budget deficit at 13.1 percent of GDP, which was higher than the 10.4 percent target under the country’s bailout program.

The shortfall was boosted by 5.8 billion euros of capital injected into some banks, the Dublin-based Finance Ministry said in a statement today. Stripping out those costs, the budget gap was 9.4 percent of GDP, the statement said. In all, Ireland has poured about 62 billion euros into its financial system, after a real estate bust pushed some banks to the brink of collapse.

The commission attached two reservations on the Irish data. Eurostat said it’s still awaiting the final restructuring plans for two banks so it can confirm the size of the needed capital injection. The statistics office also signaled concern that debt linked to Ireland’s so-called bad bank is currently not on the government’s books, as the entity which controls the agency has fallen under government control.

Irish Life Investment Managers said today it has agreed to sell its stake in the vehicle designed to keep the National Asset Management Agency debt off the state’s balance sheet to a “private investor.” Ireland’s Finance Ministry said in a statement the stake’s sale will allow the country to keep NAMA’s debts off its books.

To contact the reporter on this story: Andrew Davis in Rome at abdavis@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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