Government Debt in France and Italy Swells to Euro-Era Highs

  • Euro area narrows debt and deficit as ECB looks at stimulus
  • Italian government plans tax cuts to boost fragile economy

Government debt in France and Italy expanded to euro-era highs in the second quarter, as nations in the currency bloc grappled with weak growth while pushing through budget cuts and economic reforms.

France, the second-largest economy in the euro area, saw its debt swell to 97.7 percent of gross domestic product in the second quarter of 2015, the European Union’s statistics agency said in a report on Friday. Debt in Italy, the bloc’s third-biggest economy, rose to 136 percent of GDP. The figures are the highest for both countries since the euro debuted in 1999.

The figures underscore the fragilities of the euro-area recovery as the European Central Bank signals it is preparing for more stimulus. The inflation rate dropped below zero last month, hit by a rising currency as an emerging-market slowdown drags on global trade.

“The recovery in domestic demand in the euro area continues to be hampered by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms,” ECB President Mario Draghi said after the central bank’s Governing Council met in Malta on Thursday.

Government debt in the euro area as a whole decreased in the second quarter to 92.2 percent of GDP from 92.7 percent, Eurostat said. That’s higher than the 91.8 percent that it was at the same point two years ago.

Italian debt is second only to Greece as a proportion of GDP. Last week the government presented a draft of its 2016 budget to parliament that includes tax cuts and other incentives.

French Finance Minister Michel Sapin said last month that his country’s debt will stop rising in 2016. Government spending will drop to 55.1 percent of GDP next year, down from 55.8 percent this year and 56.4 percent in 2014, he said. The figures exclude the cost of the payroll tax credit for business, which is part of President Francois Hollande’s strategy to improve French competitiveness.

Faced with tougher monitoring by the European Union, euro-area nations have had more success reducing the budget gap. The bloc’s seasonally adjusted deficit narrowed in the second quarter to 2 percent of GDP from 2.1 percent in the previous three months. It stood at 3.3 percent two years ago.

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