Primary Budget Balances in EMU

With the official creditors on their way back shortly to Athens, there is
a sense that a repeat of 2015 crisis can be
  There is a collective sigh of relief.  The
generic two-year yield was pushing around 10% in the last couple of weeks and
now is at 8.16%, the new low for the month.  The generic 10-year yield
reached 8.1% at the end of last week and is now 7.22%, also new lows for

To be sure, Greece is not getting another tranche of aid, but it doesn’t really need it until closer to July when a
large debt servicing bill comes due.
there is appears to be a window of opportunity, and several European finance
minister wants to shift the focus from
budget cuts to structural reforms.  The tax system, pensions, and the labor market are the focus of
such efforts.  

However, reports suggest that if the pressure on Greece is somewhat less,
it may intensify on Italy. 
As early as tomorrow, the EC may press
Italy harder, and perhaps even threaten action if it does not implement
measures to reduce its debt.  Italy’s debt-to-GDP ratio reached 132.8%
last year and is set to rise to 133.3% this year
if everything goes according to plan.  Ironically, there may be concerns
Italy’s debt is not sustainable, but the EC argues against the IMF that
Greece’s debt (~180% of GDP) is sustainable. 

Earlier this month, Italy promised measures to reduce its structural
deficit by 0.2% of GDP.
  The measures are to be implemented by the end
of April.  The soon-to-be-issued warning is a reminder of Italy’s commitment.   Italy’s structural deficit
appears to be moving in the wrong direction.  It was 1.0% (of GDP) in 2015
and rose to 1.6% last year.  It is set to rise to 2.0% this year and 2.5%
next year. 

The Great
below was compiled by Thomson Reuters. 
  It shows the
projections of primary budget balances for EMU members according to the
EC.  This is a different measure
than the structural deficit.  The primary balance is the budget balance
excluding debt servicing costs. 

There are four countries that seem problematic but do not appear to be
the subject of much pressure.  France sticks out like a sore thumb.
It is the only eurozone member where a larger primary budget deficit in 2018
than this year is forecast.    Note Finland, Spain, and Estonia also continues to record primary deficits.  There may be several
reasons why Spain is growing faster than Italy.  Often Rajoy’s labor
reforms and the earlier efforts to address the bank system problems are cited. 
Spain’s primary budget deficit this year is in a modest deficit, while Italy is
expected to report among the largest primary surpluses among EMU members this

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