Financial Balance Sheets of General Governments

Between 1999 and 2008, the performance of the financial balance sheets of the Eurozone general governments has led to a gathering of the countries into five groups: [1]

  • • Group 4: Estonia, Lithuania, Slovakia, and Slovenia.
  • • Group 5: Belgium, Ireland, Italy, and Spain.
  • • Group 6: France, Germany, Greece, and Portugal.

As in the cases of private financial and non-financial sectors, the period before the onset of the crisis was characterized by a strong deterioration in the net financial position of general governments. Thus, there was a decline in the size of net financial assets in 11 countries (those included in groups 2, 4, and 6). The main reason of this process was the fall in the size of financial assets (which fell in 7 countries), because in 12 countries a fall in the size of financial assets was registered (countries belonging to groups 3, 4, and 5).

The onset of the financial crisis in 2007-2008 and the subsequent Great Recession has led to an enormous deterioration of the European public finances which has given rise to a widespread increase of fiscal imbalances (that is, fiscal deficits and outstanding public debt), due not only to the impact of the decline and the slowdown of economic activity on public budget balances through the working of the built-in stabilizers but also to the implementation of expansionary discretional fiscal policies. Although since the year 2010 in the European Union, in general, and in the Eurozone countries, in particular, there was a generalized change in the fiscal policy stance towards an adjustment of fiscal deficits. In most Eurozone countries the size of public debt has been growing; as a result, since the year 2008 the size of the public debt and the financial liabilities of general governments have increased in all the Eurozone countries with no exception.

But, besides the impact of the crisis on public finances and the consequence of the discretionary expansionary fiscal policies on public budget balances, financial balance sheets of Eurozone general governments have been deeply affected by bank rescues. In addition to their direct impact on non-financial public revenues and expenditures and on the public budget balances (Ferreiro et al. 2015, 2016b; van Riet 2010; Stoltz and Wedow 2010), the measures of support to trouble financial institutions have generated an increase of the size of financial assets of general governments, and, thus, this component of the financial balance sheets has increased in all eurozone countries.

In sum, as a result of this process, in the years 2008 to 2014, eurozone countries can be gathered in three groups:

  • • Group 1: Estonia and Finland.
  • • Group 2: Austria, Belgium, Cyprus, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Portugal, Slovakia, Slovenia, and Spain.
  • • Group 3: The Netherlands.

As a whole, there has been a deterioration of the net financial position of general governments in 17 euro countries, and only in Estonia and Finland has the financial position improved. The size of financial assets of general governments has increased in all euro governments, apart from The Netherlands. But the most characteristic feature of this process is that the financial liabilities of general governments have grown in all Eurozone countries.

Regarding the evolution of the net financial position of general governments, most countries (13 countries) have permanently maintained a net debtor position. This has been the case for Austria, Belgium, Cyprus, France, Germany, Greece, Ireland (with the only exception of the year 2007), Italy, Malta, The Netherlands, Portugal, Slovakia, and Spain. On the contrary, 3 countries (Estonia, Finland and Luxembourg) have recorded a net creditor position since 1999. Finally, Latvia, Lithuania, and Slovenia, which before 2008 had had a net creditor position, have registered a net debtor financial position since that date.

  • [1] Group 2: Austria, Latvia, and Luxembourg. • Group 3: Cyprus, Finland, Malta, and the Netherlands.
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