In response to the sovereign debt crisis in Europe the Fiscal Compact was signed in March by every EU member state except the Czech Republic and the United Kingdom. The fate of this Compact has been made uncertain by the elections in France and Greece, which are seen as a popular rejection of its terms and effects. Inspired by Germany and other proponents of fiscal discipline in Europe, the pact aims to prevent excessive deficits requiring bailouts like the ones needed by Greece, Portugal, Ireland, and Hungary. It requires national budgets to be in balance or in surplus, the EU’s new “golden rule.” The treaty will enter into effect on January 1, 2013, if by then twelve out of the 17 members of the Eurozone will have ratified it.
Up to now the following legislatures have adopted the pact: Portugal, Slovenia. Ireland's ratification procedure requires a national referendum, which is set to be held on May 31st, 2012.
Meanwhile, the crisis has deepened. Data in early May showed that the unemployment rate for the Eurozone had reached 10.9 percent, the highest since the introduction of the common currency in 1999. The European Commission called the figures “very worrying” and indicated that growth would join the EU agenda along with fiscal consolidation.
Among the most important steps to be taken, the Commission highlighted reforms of labor laws. Broadly speaking, EU countries are taking or considering these steps to cut deficits and increase flexibility in the public-private labor market nexus:
- Reduction of the minimum wage
- Pay freezes and reduction of salary bonuses
- Pension cuts and increased retirement age
- Reduction of severance pay
- Reduction in vacation days
- Easing of restrictions on layoffs
- Reduction in duration and amount of unemployment benefits
- Collective bargaining agreements no longer applicable economy-wide.
- Preference for company-specific rather than sector-wide agreements
- Reduction in welfare benefits
- Expansion of part-time and temporary work
[table from Irene Kyriakopoulos, "Europe's Economic Crisis: Fiscal Impacts," INSS Roundtable on Europe's Economic Crisis. NDU, 4/12]
The following is a country by country table of specific measures as of May 1, 2012. This list will be regularly updated.
Austria
GDP: €286.2 billion
National debt: €205.5 billion (71.8 percent of GDP)
Government Budget: €150.4 billion (53.0 percent of GDP)
Annual deficit: €12.6 billion (4.4 percent of GDP)
Unemployment rate: 4.0 percent¹
[Eurostat – 2010 figures]
The Austrian budget deficit for 2011 fell to 2.6 percent. Austria adopted further austerity measures in March 2012, meant to save €26.5 billion through 2016, 76 percent of which through budget cuts and the rest from the closing of tax loopholes. They mandate:
- Federal civil service hiring freeze through 2014; salary freeze for one year, followed by a year of small raises
- Sizeable reduction in the size of Parliament
- Increase in the pension age and stricter entitlement conditions on pensions and early retirement
- Cuts of in the healthcare sector of €1.4 billion through 2016
Belgium
GDP: €354.3 billion
National debt: €340.5 billion (96.2 percent of GDP)
Government Budget: €187.0 billion (53.1 percent of GDP)
Annual deficit: €14.5 billion (4.1 percent of GDP)
Unemployment rate: 7.3 percent¹
[Eurostat – 2010 figures]
After 18 months with a care-taker government, the new administration passed a set of austerity measures in December 2011. The €11.3 billion deficit reduction plan is intended to reduce the government deficit from 3.2 to 2.8 percent of GDP by 2012 and balance the budget by 2015. It mandates:
- Pension reform raising retirement age to 62 from 59
- Tax increases on interest revenue (except for savings accounts), on capital-gains (four percent), on company cars and on tobacco and alcohol
- Additional cuts amounting to €1.8 billion were passed in early 2012 after the 2012 economic growth forecast was revised downward to zero.
Bulgaria
GDP: €36.0 billion
National debt: €10.6 billion (61.5 percent of GDP)
Government Budget: €13.6 billion (37.7 percent of GDP)
Annual deficit: €1.1 billion (3.1 percent of GDP)
Unemployment rate: 12.6 percent¹
[Eurostat – 2010 figures]
Bulgaria is not in the Eurozone. The Bulgarian Lev (BGN) is pegged to the euro at a rate of approximately 2 leva per euro. Measures in Bulgaria include:
- Minimum wage raised from BGN 270 to BGN 290 this year (approximately €145)
- Funds shifted from security to education and culture, science and justice
- Increase of one year of the retirement age
Cyprus
GDP: €17.3 billion
National debt: €10.6 billion (61.5 percent of GDP)
Government Budget: €8.1 billion (46.6 percent of GDP)
Annual deficit: €0.9 billion (5.3 percent of GDP)
Unemployment rate: 10.0 percent¹
[Eurostat – 2010 figures]
- VAT increase to 17 percent
- Two-year freeze on public sector salaries
Czech Republic
GDP: €149.3 billion
National debt: €56.1 billion (37.6 percent of GDP)
Government Budget: €65.6 billion (45.2 percent of GDP)
Annual deficit: €7.2 billion (4.8 percent of GDP)
Unemployment rate: 6.7 percent¹
[Eurostat – 2010 figures]
After passing a confidence vote on austerity measures by a narrow margin in late April, 2012, the government announced it would focus on growth-enhancing measures. Austerity measured adopted to date include:
- Increase of VAT tax of one percent to 21 percent
- Increase in income tax
- Increase in taxes on the wealthy
- Reductions in health insurance payments
- Removal of various tax deductions
Denmark
GDP: €235.6 billion
National debt: €103.0 billion (43.7 percent of GDP)
Government Budget: €136.5 billion (58.2 percent of GDP)
Annual deficit: €6.12 billion (2.6 percent of GDP)
Unemployment rate: 8.1 percent¹
[Eurostat – 2010 figures]
- General taxes raised, notably for cigarettes and junk food
- Closing of tax loopholes for multinational corporations
- Stimulus package directed towards schools, roads, other infrastructure projects, and welfare
Estonia
GDP: €14.3 billion
National debt: €0.9 billion (6.7 percent of GDP)
Government Budget: €477.8 billion (45 percent of GDP)
Annual deficit: Surplus of €0.03 billion (0.2 percent of GDP)
Unemployment rate: 11.7 percent³
[Eurostat – 2010 figures]
- Increase in alcohol tax
- Pay freeze for government ministers at 2011 level
- Growth measures include an increase in government spending by 9 percent, with social spending up by 10 percent
Finland
GDP: €180.3 billion
National debt: €87.1 billion (48.3 percent of GDP)
Government Budget: €99.3 billion (55.1 percent of GDP)
Annual deficit: €4.5 billion (2.5 percent of GDP)
Unemployment rate: 7.5 percent¹
[Eurostat – 2010 figures]
Finland has implemented a €2.7 billion austerity program for 2012 including cuts in public spending and tax increases. It mandates:
- Increase in VAT to 24 percent
- Increase taxes on transport fuels, tobacco and alcohol, newspaper and magazine subscriptions, and sweets
- Reduce corporate tax rate by 1.5 percent
- Reduce municipal government spending by €631 million
- Reduce defense spending by €49 million
France
GDP: €1,932.8 billion
National debt: €1,590.7 billion (82.3 percent of GDP)
Government Budget: €1,094.0 billion (56.2 percent of GDP)
Annual deficit: €137.2 billion (7.1 percent of GDP)
Unemployment rate: 10.0 percent¹
[Eurostat – 2010 figures]
An €11 billion deficit reduction plan was unveiled in August 2011. These measures aim at bringing the deficit down from 7.1 to 5.7 percent in 2011, 4.5 percent in 2012, three percent in 2013 and eventually balance the budget by 2016. It mandates:
- Temporary three percent tax increase for households earning more than €500,000 a year
- Increase in capital gains tax by 1.1 percent. These two measures are intended to yield a combined €1.5 billion
- Tax increase on property investment, excluding primary residencies adding €2.2 billion in extra revenue
- Increase in healthcare tax of up to seven percent, resulting in €1.1 billion per year
- Corporate tax reform, limiting tax breaks for companies incurring losses and harmonizing French and German corporate tax systems. It will bring in an extra €1.5 billion
- replacement freezing scheme affecting 30,400 civil servants
A subsequent €7 billion deficit reduction plan, with a stronger focus on spending cuts, was unveiled in September 2011 in response to a downward revision of growth forecast. It mandates:
- Indexation of family and housing benefits to GDP rather than inflation, generating cuts in social security spending of €400 million in 2012
- Reduction of election campaign reimbursement limit by five percent
- Anticipation to 2017 of the effects of the 2010 pension reform, which brings retirement age from 60 to 62, saving 7.8 billion in social security spending between 2012 and 2018
- Increase on corporate tax by five percent for 2012 and 2013 on companies generating more than €250,000 annually
- Increase in VAT on certain non-essential goods and services from 5.5 percent to seven percent bringing in €1.7 billion
Germany
GDP: €2,476.8 billion
National debt: €2,060.7 billion (83.2 percent of GDP)
Government Budget: €1,164.1 billion (46.6 percent of DP)
Annual deficit: €106.5 billion (4.3 percent of GDP)
Unemployment rate: 5.6 percent¹
[Eurostat – 2010 figures]
Germany plans on having a balanced budget by 2016. No real austerity measures in the 2012 budget, deficit reduction will be achieved exclusively through growth.
Greece
GDP: €227.3 billion
National debt: €329.4 billion (144.9 percent of GDP)
Government Budget: €113.9 billion (49.5 percent of GDP)
Annual deficit: €24.1 billion (10.6 percent of GDP)
Unemployment rate: 21.7 percent²
[Eurostat – 2010 figures]
Greece has received two bailout packages from the EU and IMF. The first package (May 2010) is worth €110 billion while the second package (February 2012) amounted to an additional €130 billion. The terms of these bailouts include measures for the liberalization of protected economic sectors. In addition, the second bailout requires Greece's private creditors to accept a 53 percent write-down on the face value of their €200 billion in holdings. This “haircut” on the value of privately held Greek debt is meant to bring Greece’s national debt to around 120 percent of GDP by 2020 from the current 164 percent. It mandates:
- Reduction in the government’s operational spending by €200 million
- Reduction of supplementary pensions between 10 to 20 percent
- Removal of allowances for families with annual incomes above €45.000, unless they have five or more children
- Domestic public investment cuts of €400 million
- Introduction of a 1:10 hiring attrition rule in state owned enterprises
- Reduction of wages for local political staff of 10 percent
- Reduction in the minimum wage by 22 percent
- Reduction of tax exemptions for a number of categories
- Increased taxes on yachts, cars, swimming pools, and property
- Full or partial privatization of several companies amounting to €10 billion
- Reduction of health spending of over one billion
- Defense cuts of €300 million
- Retirement age raised from 61 to 65 predicted to save €1.28 billion in 2012 alone
- Reduction of 150,000 public-sector jobs through hiring freeze and elimination of temporary contracts
- Reduction in public-sector salaries by 15 percent
Hungary
GDP: €97.0 billion
National debt: €78.9 billion (81.3 percent of GDP)
Government Budget: €48.0 billion (48.9 of GDP)
Annual deficit: €4.1 billion (4.2 percent of GDP)
Unemployment rate: 11.2 percent¹
[Eurostat – 2010 figures]
Hungary received a €19 billion emergency bailout in 2008 in the immediate aftermath of the financial crisis, with funds from the IMF, the EU and the World Bank. The country is currently involved in talks the EU for a second rescue package. Hungary’s 2012 Budget aims to cut the deficit by 2.2 percent of GDP by 2013. It mandates:
- Removal of 13th monthly pension
- Increase of the retirement age to 65
- Minimum pension benefit freeze and restrictions to disability pensions
- Reduction of sick-pay benefits, housing subsidies and gas prices and district heating compensations
- Freeze of child-care benefits
- Reduction of pharmaceutical subsidies. Reduction in the number of student subsidies, and cuts to unemployment benefits
- Measures to increased public sector efficiency
- Increase in the VAT rate from 25 to 27 percent
- Increase in taxes on tobacco, alcohol, diesel, gambling
- Increase in social security contribution by one percent
- Private pension fund reform
- Introduction of an electronic road toll system planned for 2013
Ireland
GDP: €156.0 billion
National debt: €144.3 billion (92.5 percent of GDP)
Government Budget: €103.2 billion (67.0 percent of GDP)
Annual deficit: €48.8 billion (31.3 percent of GDP)
Unemployment rate: 14.5 percent¹
[Eurostat – 2010 figures]
Ireland was forced to require a €85 billion bailout by the EU and IMF in 2010. The conditions for the bailout required fiscal tightening measures:
- Reduction in spending by €10 billion
- Increase in taxes by €5 billion
- Reduction of minimum wage by one euro to €7.65
- Savings in social welfare expenditures of €2.8 billion by 2014 through a combination of enhanced control measures, structural reforms
- Reduction in public service staff numbers by 24,750 over 2008 levels, back to 2005 levels
- Introduction of a reformed pension scheme for new entrants to the public service and pay cuts of 10 percent
- Increase in the price of carbon from €15 to €30 per ton, expected to yield €330 million
- Introduction of a Site Value Tax to fund essential locally-delivered services, expected to bring in €530 million
- Reform of the welfare system aimed at encouraging employment
- Introduction of water metering by 2014
- 12½ percent tax rate of corporations maintained
Italy
GDP: €1,556 billion
National debt: €1,837 billion (118.1 percent of GDP)
Government Budget: €782 billion (50.3 percent of GDP)
Annual deficit: €71 billion (4.6 percent of GDP)
Unemployment rate: 9.8 percent¹
[Eurostat – 2010 figures]
In September 2011 a €48 billion austerity package was unveiled, followed in December 2011 by a further €20 billion deficit reduction plan (90 percent of which from increased revenue) introduced by the newly instated Monti government. The measures include:
- Salary freeze for public employees until 2014; incremental cuts to central government ministries between 2012 and 2014; cut of 10 percent to public funding for political parties; reduction of transfers to local administrations
- Privatization of state-controlled entities
- Increase in taxes on banks and other financial institutes
- Increase in the gas tax and increases revenue from state-sponsored gambling
- New three percent tax on individuals with incomes above €300,000 a year
- Increase in women’s retirement age to bring it to par with men’s
- Property tax reinstated on primary residencies and tax increase on other property taxes, expected to bring in €10 billion
- Further increase in gasoline tax to 70.42 cents per liter
- Increase in VAT to 23 percent starting in October 2012
- Pension reform requiring Italians to work 41 years before retirement
- Cash transactions limited to €1000 to counter tax evasion, and introduction of a new national database in order to track monetary fraud
- Liberalization of formerly protected industries, including pharmacies, taxis, lawyers, notaries, gas stations, and ENI, the partly state-owned national oil and energy company
- Removal of tax exemptions on properties belonging to the Catholic Church
In early March, the government began a spending review which identified €295 billion in possible public spending rationalization, €80 billion of which available in the short run (one year), out of a total government budget of €650 billion excluding interest payments on government debt.
Latvia
GDP: €18.52 billion
National debt: €6.79 billion (36.7 percent of GDP)
Government Budget: €8.19 billion (44.2 percent of GDP)
Annual deficit: €1.80 billion (9.7 percent of GDP)
Unemployment rate: 14.6 percent³
[Eurostat – 2010 figures]
Latvia accepted a €7.5 billion rescue loan in 2009, with funds from the EU, IMF, World Bank, European Bank for Reconstruction and Development and several Nordic countries. The government introduced a three billion Euros deficit reduction plan as part of the loan agreement of 2009. The budget deficit is expected to fall to 2.5 percent this year, down from 10 percent in 2009. The plan mandated:- Introduction of new property taxes
- Cuts in government spending amounted to 1 billion Latvian Lats or 1.42 billion euros, mainly from severe reductions in public sector wages
- Pension reduction plan was scrapped due to popular protests
- Introduction of a progressive income tax system, raising the tax rate for high-income earners.
- Increase in VAT and Social Security contributions
- Currency devaluation was avoided. The peg of the Lat to the euro was maintained (1.42 €/Lt) as a step to eventual adoption of the euro, expected for 2014
Lithuania
GDP: €27.5 billion
National debt: €10.4 billion (38 percent of GDP)
Government Budget: €11.3 billion (41.3 percent of GDP)
Annual deficit: €1.9 billion (7 percent of GDP)
Unemployment rate: 14.3 percent³
[Eurostat – 2010 figures]
- Cuts to government ministries of around four percent
- State-owned companies to divert a portion of their profits to the government budget
- New taxes for luxury real estate
- Reduction of social-security tax diverted to privately run retirement funds
Luxembourg
GDP: €40.3 billion
National debt: €7.7 billion (19.1 percent of GDP)
Government Budget: €17.2 billion (41.2 percent of GDP)
Annual deficit: €0.4 billion (1.1 percent of GDP)
Unemployment rate: 5.2 percent¹
[Eurostat – 2010 figures]
- Reduction of government spending of €370 million in 2011, and €407 million in 2012, including cuts in transportation and education spending
- Cuts of 10 percent to government subsidies to companies
- Reduction in public investment and subsidies to households
Malta
GDP: €6.2 billion
National debt: €4.3 billion (69 percent of GDP)
Government Budget: €2.6 billion (42.3 percent of GDP)
Annual deficit: €0.2 billion (3.6 percent of GDP)
Unemployment rate: 6.8 percent¹
[Eurostat – 2010 figures]
Malta has not adopted any austerity measures. However, the 2012 budget shows savings amounting to 0.59 percent of GDP, emanating from cuts in recruitment, overtime, operational and maintenance expenditure, and cuts in spending by government entities.
Netherlands
GDP: €588.4 billion
National debt: €370.1 billion (62.9 percent of GDP)
Government budget: €302.9 billion (51.2 percent of GDP)
Annual deficit: €30 billion (5.1 percent of GDP)
Unemployment rate: 5.0 percent¹
[Eurostat – 2010 figures]
The government of the Netherlands fell the third week of April 2012 due to a breakdown in coalition talks over €15 billion in budget cuts needed in order to bring government deficit under three percent, as required by the new Fiscal Compact. Elections will be held in September 2012. Previous austerity measures include:
- Cuts to public spending
- Reversal of personal contributions for health care
- Increase in tax and social security contributions
- Reduction in civil service hiring
- Raise in retirement age to 66 by 2020
Poland
GDP: €354.3 billion
National debt: €194.5 billion (54.9 percent of GDP)
Government Budget: €161.9 billion (45.7 percent of GDP)
Annual deficit: €27.6 billion (7.8 percent of GDP)
Unemployment rate: 10.1 percent¹
[Eurostat – 2010 figures]
- Increase in the disability contribution rate paid by employer
- Nominal wage freeze
- Local government financing reform
- Reduction in debt servicing cost due changes to the pension scheme
- Restrictions to early retirement
- Increase in taxes on fuel
- Introduction of a tax on copper and silver
Portugal
GDP: €172.6 billion
National debt: €161.0 billion (93.3 percent of GDP)
Government Budget: €87.5 billion (50.7 percent of GDP)
Annual deficit: €16.9 billion (9.8 percent of GDP)
Unemployment rate: 15.3 percent¹
[Eurostat – 2010 figures]
Portugal received a €78 billion bailout program from the IMF, ECB and EU which was approved in May 2011. Austerity measures were adopted as part of the loan agreement, mandating:
- Suspension for two years of holiday and Christmas bonuses for public servants and retirees
- Completion of the privatization of holdings in Energias de Portugal and Redes Energeticas Nacionais. Reduction of state holdings in Portugal Telecom and EDP, no longer under government control.
- Pay cuts for senior public sector staff and politicians of five percent
- Increase in VAT by one percent
- Increase in corporate tax rate
- Increase in income tax, including increase in the tax rate to 45 percent for those earning more than 150,000 euro a year
- Cuts to social welfare programs
- Increase of three percent in corporate tax rate for companies with profits above €1.5 million, plus a further two percent on every €10 million in profits
Romania
GDP: €124.0 billion
National debt: €38.44 (31 percent of GDP)
Government Budget: €49.7 billion (40.8 percent of GDP)
Annual deficit: €8.6 billion (6.9 percent of GDP)
Unemployment rate: 7.5 percent¹
[Eurostat – 2010 figures]
The government was forced to resign in January 2012 in response to protests to the austerity measures adopted the previous year. The new government in turn failed to pass a confidence vote in April 2012, and new elections are scheduled for the fall. Austerity measures adopted to date include:
- Public-sector wage cuts of 25 percent
- Pensions cuts of 15 percent
- Increase in VAT rate to 24 percent
Slovakia
GDP: €65.9 billion
National debt: €27.0 billion (41 percent of GDP)
Government Budget: €27.0 billion (41.0 percent of GDP)
Annual deficit: €5.1 billion (7.7 percent of GDP)
Unemployment rate: 13.9 percent¹
[Eurostat – 2010 figures]
With a new government just coming into power after elections in March 2012, no austerity measures have been adopted to date.
Slovenia
GDP: €35.4 billion
National debt: €13.7 billion (38.8 percent of GDP)
Government Budget: €17.7 billion (49.9 percent of GDP)
Annual deficit: €2.0 billion (5.8 percent of GDP)
Unemployment rate: 8.5 percent¹
[Eurostat – 2010 figures]
The government put forward a plan to cut expenditure by €818 million, bringing the deficit down to three percent of GDP within a year. It mandates:
- Reduction in salary for civil servants by 15 percent
- Reduction in public sector bonuses
- Cuts to unemployment and healthcare benefits
- Plan to adjust public sector wages based on inflation has been scrapped
Spain
GDP: €1,051 billion
National debt: €641.1 billion (61 percent of GDP)
Government Budget: €477.8 billion (45.0 percent of GDP)
Annual deficit: €97.7 billion (9.3 percent of GDP)
Unemployment rate: 24.1 percent¹
[Eurostat – 2010 figures]
The EU has agreed to allow Spain to breach its intended deficit-reduction target of 4.4 percent for 2012, to 5.3 percent of GDP in light of the deep recession that has hit the country. Spain still intends to meet the three percent budget deficit target for 2013 as mandated by the new fiscal compact. Austerity measures adopted to date include:
- Reduction in public funding of political parties by 20 percent;
- Public sector hiring freeze in 2012
- Public sector wages and minimum wage freeze
- Spending cuts totaling €8.9 billion
- Tax increases of €6 billion, stemming from: temporary increase in personal income tax, selective tax rate increases on real estate, and removal of oil subsidies
- Introduction of a balanced budget requirement for public administrations
- Regional governments accepted a 1.3 percent deficit target for next year
- New measures to curb tax evasion, including limiting cash payments to €2,500, and the obligation for taxpayers to declare overseas assets, expected to bring in €8 billion in additional revenue
- New measures introduced in April 2012 will cut a further € 10 billion a year from public spending in healthcare and education. Healthcare benefits will be reduced, particularly for pensioners and high income earners, and university fees will increase sharply
Sweden
GDP: €346.5 billion
National debt: €137.2 billion (39.7 percent of GDP)
Government Budget: €183.6 billion (53 percent of GDP)
Annual deficit: Surplus of €0.7 billion (0.2 percent of GDP)
Unemployment rate: 7.3 percent¹
[Eurostat – 2010 figures]
Sweden has not implemented stringent austerity measures given its stable fiscal situation.
UK
GDP: €1,706.3 billion
National debt: €1,363.3 (79.9 percent of GDP)
Government Budget: €862.1 (50.9 percent of GDP)
Annual deficit: €175.7 billion (10.3 percent of GDP)
Unemployment rate: 8.2 percent²
[Eurostat – 2010 figures]
- Budget deficit expected to be 7.6 percent for the year and falling
- Welfare reform introducing a £26,000-a-year cap on yearly family benefits
- Introduction of a single tier pension for future retirees
- Reduction of corporate tax rate to 24 percent, 20 percent for small companies
- Increase in tax on tobacco of five percent
- Removal of tax loopholes
- Increased taxes for the wealthy
- Introduction of capital gains tax on residential property held overseas
- Limit to 25 percent of a person’s income for tax relief requests above 50,000 £
- Removal of child benefits for those earning more than £50,000
- Increased investment in infrastructure, especially in the improvement of rail networks in the north of the country
___________________
¹ Eurostat – March 2012 figures
² Eurostat – Januray 2012 figures
³ Eurostat – 4th quarter 2011 figures