National debts and government deficits within European Monetary Union: Statistical evidence of economic issues

TL;DR

This paper provides statistical evidence that sovereign debts and deficits in European Union countries have worsened post-Euro introduction, possibly due to EU economic policies affecting fiscal flexibility during recessions.

Contribution

It offers an empirical analysis of debt and deficit trends within the EU, highlighting the impact of economic policies like the Maastricht Treaty and Stability Pact.

Findings

Debt and deficit levels increased more in EU countries after Euro adoption.

EU economic policies may delay counter-cyclical fiscal responses.

Worsening fiscal indicators are linked to policy constraints during recessions.

Abstract

This study analyzes public debts and deficits between European countries. The statistical evidence here seems in general to reveal that sovereign debts and government deficits of countries within European Monetary Unification-in average- are getting worse than countries outside European Monetary Unification, in particular after the introduction of Euro currency. This socioeconomic issue might be due to Maastricht Treaty, the Stability and Growth Pact, the new Fiscal Compact, strict Balanced-Budget Rules, etc. In fact, this economic policy of European Union, in phases of economic recession, may generate delay and rigidity in the application of prompt counter-cycle (or acyclical) interventions to stimulate the economy when it is in a downturn within countries. Some implications of economic policy are discussed.