The European Union witnessed a decrease in debt to 83.1% of gross domestic product (GDP) in the second quarter, down from 85.9% the previous year, as reported by Eurostat. However, the Czech Republic stands in contrast, with its debt on the rise, reaching 44.3% of GDP by the end of the second quarter, compared to 43.5% the previous year. This trend brings the state debt to a record high for the Czech Republic.

Among EU member states, Greece continues to hold the highest debt, reaching 166.5% of GDP, followed by Italy with 142.4% and France with 111.9%. Six EU countries have debt exceeding 100% of their economic output. Conversely, Estonia reported the lowest debt at the end of the second quarter, standing at 18.5%, followed by Bulgaria and Luxembourg.

The collective debt of the EU escalated to over 13.67 trillion euros (approximately 337 trillion CZK) by the close of the second quarter, in contrast to 13.15 trillion euros the previous year. The Czech Republic’s state debt surged to over 3.15 trillion korunas, marking a record high compared to 2.79 trillion korunas a year ago.

Comparing debt levels to the end of the first quarter, both the EU and the Czech Republic observed a slight decrease. The EU’s debt was 83.4% of GDP at the end of the first quarter, which dropped to 83.1% by the end of the second quarter. Similarly, the Czech Republic’s debt decreased from 44.5% of GDP at the end of the first quarter to 44.3% at the end of the second quarter.

Zooming in on the eurozone, its debt decreased to 90.3% in the second quarter, down from 90.7% at the end of the first quarter and 93.5% the previous year. These figures reflect the broader economic landscape in the region and the ongoing challenges in balancing budgets and debt management.

Meanwhile, the German government expects a decline in GDP this year, indicating the economic impact of the ongoing global uncertainties. In the EU, the deficit of public finances reached 3.2% of GDP in the second quarter, a rise from a deficit of 2.3% in the same period the previous year, according to Eurostat. The Czech Republic’s debt increased to 3.3% of GDP from 2.9% the previous year, adding to the country’s financial challenges.

Tracing the history of the Czech Republic’s debt since 1993 reveals fluctuations in its levels. The state debt reached its lowest point between 1996 and 1998, standing at nine percent of GDP, a period coinciding with Václav Klaus’s tenure as Prime Minister. However, from 1999 to 2013, the debt increased steadily from ten percent to 41% of GDP, reflecting different governments’ fiscal policies during those years.

The fiscal rules of the European Union, known as the Stability and Growth Pact, set the guidelines that public debt should not exceed 60% of GDP and budget deficits should not surpass three percent of GDP. However, the economic impact of the COVID-19 pandemic led to the suspension of the pact in 2020. The pact’s exceptional relaxation was extended, partly due to the energy crisis that was exacerbated by the conflict in Ukraine. These events continue to shape the fiscal landscape of the EU and its member states, including the Czech Republic.

Article by Prague Forum