January 30, 2020 / 12:15 PM / 20 days ago

Fiscal health of euro zone budget hawks worsens when guarantees added

BRUSSELS, Jan 30 (Reuters) - The fiscal soundness of Germany, Finland and Austria could be much worse than official statistics show if their guarantees to banks and other ailing business turned bad, data released on Thursday by Eurostat show.

The three countries, which are among the strictest interpreters of EU fiscal rules, are the most exposed in the euro zone to “contingent liabilities”, which are public guarantees that may open holes in their budgets when they are triggered.

The EU statistics agency said in 2018 Finland had contingent liabilities worth 32.6% of its gross domestic product, by far the largest share in the 19-country euro zone. That year, Helsinki posted a deficit at 0.8% of GDP and debt of 59%, both below the thresholds set by EU fiscal rules.

Austria had the second-highest level of outstanding guarantees at 16.3% of GDP, followed by Germany with 12.8%. Both countries recorded a budget surplus in 2018. High-debt countries, like Italy and Greece, had instead issued guarantees worth less than 5% of GDP.

“Contingent liabilities are only potential liabilities. They may become actual government liabilities if specific conditions prevail,” Eurostat said, adding that the publication of the data made public finances more transparent.

It began collecting the data from EU states after fiscal rules were tightened in 2011 in the midst of the euro zone debt crisis.

Until then, EU states were allowed to keep such data confidential. But the impact on public finances caused in some states by the triggering of guarantees led to the current, more transparent regime.

EU fiscal rules are currently being reviewed by the European Commission after EU experts said they were excessively complicated and needed an overhaul. Many also argue the rules limit growth with outdated requirements.

The Commission’s assessment, expected next week, will need to be backed by EU states in the event of a possible overhaul.

Reporting by Francesco Guarascio @fraguarascio; editing by Larry King

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