In 2009 the largest government deficits in percentage of GDP were recorded by Ireland (-14.3%), Greece (-13.6%) the United Kingdom (-11.5%), Spain (-11.2%), Portugal (-9.4%), Latvia (-9.0%), Lithuania (-8.9%), Romania (-8.3%), France (-7.5%) and Poland (-7.1%). No Member State registered a government surplus in 2009. The lowest deficits were recorded by Sweden (-0.5%), Luxembourg (-0.7%) and Estonia (-1.7%). In all, 25 Member States recorded a worsening in their government balance relative to GDP in 2009 compared with 2008, and two (Estonia and Malta) an improvement.

At the end of 2009, the lowest ratios of government debt to GDP were recorded in Estonia (7.2%), Luxembourg (14.5%), Bulgaria (14.8%), Romania (23.7%), Lithuania (29.3%) and the Czech Republic (35.4%). Twelve Member States had government debt ratios higher than 60% of GDP in 2009: Italy (115.8%), Greece (115.1%), Belgium (96.7%), Hungary (78.3%), France (77.6%), Portugal (76.8%), Germany (73.2%), Malta (69.1%), the United Kingdom (68.1%), Austria (66.5%), Ireland (64.0%) and the Netherlands (60.9%).

In 2009, government expenditure4 in the euro area was equivalent to 50.7% of GDP and government revenue4 to 44.4%. The figures for the EU27 were 50.7% and 44.0% respectively. In both zones, the government expenditure ratio increased between 2008 and 2009, while the government revenue ratio decreased.

Reservations on reported data
Greece: Eurostat is expressing a reservation on the quality of the data reported by Greece, due to uncertainties on the surplus of social security funds for 2009, on the classification of some public entities and on the recording of off-market swaps. Following completion of the investigations that Eurostat is undertaking on these issues in cooperation with the Greek Statistical Authorities, this could lead to a revision for the year 2009 of the order of 0.3 to 0.5 percentage points of GDP for the deficit and 5 to 7 percentage points of GDP for the debt.

Eoin Treacy's view Investors have been questioning the efficacy of Greek economic numbers for the last year but the above release adds additional colour on the extent to which the Greek authorities misled investors and their European partners hid their true level of debt. This additional information is no doubt a contributing factor in today's additional surge in Greek government bond yields. The fact the country has been lying about the size of its liabilities is a genuine cause for disquiet for those expected to foot the bill for this bailout.

Far from being the prodigal son returned from a life of debauchery with no questions asked as to it past dealings, a bailout for Greece is likely to entail onerous further tightening measures and a marked loss of sovereignty. Moody's downgraded the country again today and pressure on the country's cost of capital continues to rise. Discussions got underway yesterday between the IMF, the Eurozone and Greece on the structure of an aid package and officials have already raised the possibility that the country may need to access at least part of this additional liquidity before the talks conclude in approximately 10 days.

The above statistics illustrate that Greece has both the second highest debt relative to GDP and the second highest budget deficit in the Eurozone. Greek 10yr yields surged to more than 8.75% today and a downward dynamic would be required to check momentum beyond a brief pause. At the same time, the relative attraction of German Bunds as a safe haven has improved and yields continue to contract; resulting in the spread between the two rising even faster.

While Greece has unquestionably got the most serious combination of budgetary and debt issues, the fact that other countries are relatively similarly embattled and not in receipt of a bailout package raises the legitimate question of moral hazard. This issue is probably behind some of the loss of faith in the motivation of other countries to tackle their problems indicative from the continued run-up in yields.

Portugal's 2009 deficit was 9.4% and it has a debt to GDP of 76.8%. Yields found support in the region of 4% in March and accelerated higher this week. A downward dynamic would be required for the previous high in the region of 5% to offer anything other than a temporary area of resistance. Portuguese spreads broke upwards to at least new 12-year highs today and a downward dynamic would be required to check momentum beyond a brief pause.

Ireland had the highest deficit in the Eurozone at 14.3% and a debt to GDP ratio of 64% suggesting it may have somewhat more room to take on additional debt provided it can sustain the trajectory of fiscal reform. Yields found support in the region of 4.5% over the last month and today's upward dynamic suggests scope for some additional upside. A countermanding swift decline would be required to check this potential. Irish spreads posted a failed downside break last week and are now testing the upper side of the six-month range. It would need to fail in this area of check potential for further expansion.

Spain also ran a deficit of more than 10% last year but the ratio of debt to GDP remains below 60%. This is reflected in the less abrupt rally in bond yields today. Nevertheless, a sustained move back below 3.8% would be required to limit scope for some additional upside. Spanish spreads found support above the 11-year range in 2009 and appear to be in the process of forming a first step above the base.

While Italy's debt to GDP ratio is the highest in the above report at 115.8%, its budget deficit is not among the worst offenders. While yields firmed today, they remain in a relatively consistent downtrend and a sustained move back above 4.2% would be required to break the progression of lower highs. Italian spreads are now testing the upper side of the 9-month range and downward dynamic would be needed to check potential for some additional upside. Longer-term, the current action could be viewed as a large consolidation above the 9-year base and sustained move below 66 basis points would be required to question this outlook.

From the above charts, Greece and Portugal are clearly the weakest Eurozone sovereigns but the longer-term spreads for Ireland, Italy and Spain also suggest that major economic, budgetary and fiscal reforms would be required for these countries to return to a cost of capital comparable to what is available to Germany, France, the Netherlands, Belgium, Austria and Finland. Right now that looks like an outside possibility.