Week 42, 2015: EU Government Finances

Summary: Eurostat announced their updated statistics for European government finances this morning, and the headline figure showed that across the EU, the average deficit improved from 3.3% to 3%. However, as always with the EU, there are many regional differences, and we've highlighted some of them in this week's chart.

What does the chart show? The chart shows total government expenditure and revenue, as defined by the ESA 2010 standards, as a percentage of GDP. This covers all non-financial transactions by general government (central and local governments combined), including both capital and current transactions. Each calendar year between 2011 and 2014 is shown, and in all cases the lighter colour represents expenditure that year, while the darker colour is revenue.

Why is the chart interesting? The latest revisions of Eurostat data suggest that on average, deficits are being reduced across Europe, with the Euro Area improving faster than the wider EU28.  This headline figure hides major regional variations, even amongst the "big" countries of the EU: the profiles of the UK, France, Germany and Italy all look very different, for example.  Germany is the only one of the four that ran a small surplus in 2014, while the UK ran the biggest deficit.  However, government spending was very similar in the two countries, with the difference coming from much lower revenues in the UK.  France and Italy both have higher levels of spending and revenues as a proportion of their GDP, and in both cases that proportion has been increasing since 2011 (unlike in the UK and Germany).  France's deficit has been falling while this increase in spending has been going on, while Italy's has been fairly steady at around 3% of GDP since 2012.

The other countries included in the chart are all examples of the extremes of European government finances. Finland has the highest level of government spending (although as you can see, France and Denmark are not far behind), driven mainly by the poor state of their economy in recent years. Denmark has both the highest level of government revenue, and also the biggest surplus (+1.5% of GDP) - two facts which are clearly related.  Cyprus has the worst deficit (-8.9% of GDP), after government spending exploded in 2014.  Romania has the smallest government in the EU, with both lowest expenditure and lowest revenue, and the contrast to countries like Denmark and Finland is stark.  And finally, Greece has been included to show the alarming state of their government finances in 2011-2013, and to point out that despite popular belief, their tax revenues were higher as a percentage of their GDP than Germany's were in every year since 2011.