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Tuesday 30 May 2017

Eurozone debt will barely fall by end of decade - Moody's

Moody's expects debt/GDP ratios to fall in 11 of the 19 countries in the bloc this year, with Cyprus, Ireland and Slovenia to see the most pronounced falls. Photo: Reuters
Moody's expects debt/GDP ratios to fall in 11 of the 19 countries in the bloc this year, with Cyprus, Ireland and Slovenia to see the most pronounced falls. Photo: Reuters
Colm Kelpie

Colm Kelpie

Public debt across the Eurozone will have only declined marginally by the end of the decade, Moody's Investor Service has warned.

Debt is due to stabilise or decline in most Eurozone countries, but only gradually, Moody's has said.

The ratings agency expects debt/GDP ratios to fall in 11 of the 19 countries in the bloc this year, with Cyprus, Ireland and Slovenia to see the most pronounced falls. "While a growing number of countries have declining debt/GDP ratios, we expect debt to decline only very gradually by 2020," it said.

"Looking at the four largest euro-area countries, debt/GDP will peak in Spain, continue to rise in France, start declining in Italy and will continue to decline in Germany in 2016. Germany is the only one of the big four countries in which we expect debt in 2020 to be at a similar level as in 2007."

Moody's said that as a result of the continued fall in oil prices, it expects inflation to remain flat in the Eurozone during the year.

"We expect inflation to be around 0pc on average in 2016 and to only gradually increase towards 1pc in 2017," said Thorsten Nestmann, a vice president/senior analyst at Moody's and co-author of the report. "The longer inflation stays low, the longer the deleveraging process will take and the longer the euro-area economy will be vulnerable to negative shocks."

Moody's said progress on structural reforms has been limited at both national and euro-area level, and support for further efforts is eroding against the background of a "fluid, unpredictable political landscape which has seen a number of challenges to the established order across Europe".

It comes as the European Central Bank's chief economist, Peter Praet, said the ECB can cut rates again if the Eurozone's economy fails to pick up and, under extreme circumstances, it might even consider printing money and giving it out directly to people.

Mr Praet said rates have not reached their lower limit, even if the ECB is aware of the impact that its negative deposit facility, effectively a charge on banks' deposits with the ECB, has on lenders' margins. Asked whether the ECB could print money and distribute it to Eurozone citizens, an extreme form of policy easing first envisaged by US economist Milton Friedman using the metaphor of a flying helicopter dropping money, Mr Praet said this was a possibility, at least in theory.

Moody's also warned that the UK's potential exit from Europe could create further obstacles to reform within the EU and also the Eurozone, and even poses risk to established programmes, if it encouraged the growth of anti-establishment or even secessionist political parties in member states.

Irish Independent

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