Total Fiscal Deficit of 19 Member Countries Expected to Reach 8.9% of GDP This Year
Focus on Economic Recovery for Now... Concerns Over Crisis Spreading to Future Generations Due to Pension Impact
[Asia Economy Reporter Jeong Hyunjin] The fiscal deficit of the Eurozone (19 countries using the euro) this year has approached 1 trillion euros (approximately 1,340 trillion won). This is the result of pouring massive economic stimulus measures in response to the spread of the novel coronavirus infection (COVID-19). Although the fiscal deficit has already increased tenfold compared to last year, concerns about a "double dip" (economic recession) due to the resurgence of COVID-19 are overlapping, and the deficit is expected to expand further. In the medium to long term, there are concerns that the increase in government debt will negatively affect even retirement pensions.
According to the draft fiscal plans of Eurozone member countries released by the European Union (EU) Commission on the 19th (local time), the fiscal deficit of these countries this year was estimated to reach 976 billion euros. This corresponds to 8.9% of the Eurozone's gross domestic product (GDP). Even if the economy rebounds next year, the fiscal deficit is expected to remain at a high level of about 6% of GDP, approximately 700 billion euros.
Among Eurozone member countries, four countries?Spain, Italy, Belgium, and France?had a fiscal deficit ratio exceeding 10% of GDP this year. In terms of the size of the fiscal deficit, France was the largest at 226.7 billion euros, followed by Germany at 207 billion euros. Spain, France, and Italy are expected to be the countries most severely affected by COVID-19 in the Eurozone this year.
Despite the sharp expansion of the fiscal deficit, there is not much immediate pressure to reduce it. This is because concerns about a double dip recession due to the resurgence of COVID-19 have increased, making the expansion of economic activity and employment rates urgent. Also, in the situation of continued ultra-low interest rates, some countries like Italy and Greece have seen their government bond yields fall to record lows due to the European Central Bank (ECB)'s large-scale bond purchase program, significantly reducing the burden of debt repayment.
Carmen Reinhart, Chief Economist at the World Bank (WB), said, "First worry about winning the war, then think about how to manage it." Marco Valli, Chief European Economist at UniCredit, said, "Governments have no choice but to maintain stimulus measures for all the support the economy needs and reduce long-term damage."
However, some voices express concerns that the fiscal crisis caused by COVID-19 may spread to future generations. This is because governments lack funds to respond to economic stimulus and are even tapping into retirement pensions. Major foreign media reported that due to the debt burden caused by COVID-19, governments' capacity to provide pensions or other services to the elderly has significantly decreased, and ultra-low interest rates have also greatly reduced pension investment returns.
Along with this, measures allowing early withdrawal of retirement pensions were implemented in countries such as Australia, the United States, Spain, and Chile due to massive job losses caused by COVID-19, which is expected to impact future pension policies. Additionally, some countries are reducing mandatory pension contributions to ease the burden on companies and households facing increased fiscal pressure.
David Knox, Senior Partner at global consulting group Mercer, analyzed, "The recession caused by the health crisis is reducing pension contributions and returns while expanding most government debts." He added, "This will affect future pensions, causing many people to work longer while some will experience a lower quality of life after retirement."
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