With the exception of Ireland, the periphery of Europe remains vulnerable to global economic shocks as the continent “papers over” problems, according to AllianceBernstein.
In recently published final government deficit and debt data for 2015, the only country to record a budget surplus was Germany (0.7 per cent of GDP), while the euro-area country with the biggest deficit was Spain (5.0 per cent of GDP).
France was the only euro-area country in addition to Spain and Greece with a deficit above the 3.0 per cent Maastricht ceiling, while the UK had a deficit of 4.4 per cent, despite relatively strong growth.
Meanwhile, Ireland had a deficit of 1.5 per cent compared to 8.2 per cent in 2012.
“Only Ireland, Germany, the Netherlands and Austria have met their targets. Elsewhere, there have been some big misses, particularly in Spain,” AllianceBernstein said in its April European Perspectives.
AllianceBernstein's senior European economist – global economic research, Darren Williams, said growing social and electoral pressure and weaker than expected growth had put pressure on countries in the euro area.
“Unfortunately, the dramatic improvement in Ireland’s fiscal position is the exception rather than the rule. The reality for many euro-area countries is that insufficient progress has been made in recent years and that their fiscal positions are still fragile,” he said.
"Moreover, with nominal growth likely to remain soft and the appetite/pressure for further cuts now minimal (Spain can’t even form a government), this is unlikely to change much in coming years.”
Mr Williams said that while the European Central Bank backstops the system and buys government debt, the fallout from a “disappointing” euro are will not be apparent.
“But the 2015 fiscal data show that the euro area has papered over its problems, not solved them, which means the periphery will be vulnerable the next time there is a major shock to the global economy or investor confidence,” he said.