Sustainability of budget deficits and public debts in selected European Union countries

Abstract

This paper presents a thorough empirical analysis of fiscal developments in the European Union over the past three decades. After an evaluation of major fiscal and financial developments in France, Germany, Greece, Ireland, Italy, Portugal and Spain, the paper uses the Present Value Constraint (PVC) framework to analyze whether European Union's debts and deficits are sustainable. It is shown that some EU's countries could be heading towards a debt and fiscal crisis, which could degenerate into a banking crisis similar to the 2001 Argentinean crisis, unless timely fiscal adjustment/austerity measures are introduced in the near future. © 2014 Elsevier B.V.