Study Finds Bailout On EU Banks Could Top 16% GDP

Fun times

BRUSSELS (AFP) – European nations need to find a “credible exit strategy” for their public finances as the aid shelled out to shore up banks could reach 16.5 percent of GDP, an EU report warned Tuesday.

In its annual report on public finances, the European Commission estimated the direct fiscal costs of the current crisis in the EU anywhere in a broad band from 2.75 percent to 16.5 percent of gross domestic product (GDP).

Which end of the estimate the final figure veers towards depends partly on how well governments manage to recover their cash injections and loans, the commission said in a statement.

Rising public debts and planning by governments to support the financial sector, together with likely increases in spending on aging populations and slowing growth “raise concerns about public finance sustainability,” it said.

Therefore “an exit strategy strengthening fiscal policy frameworks, reforming age-related spending and spelling out the broad consolidation measures envisaged when the recovery has taken hold is required,” it added.

The report, which examines the budgetary costs of the banking crisis, showed that 49 crises since 1970 around the world resulted in net direct fiscal outlays worth an average of 13 percent of GDP to revive the banking system.

“Experience shows that the costs were lower when the banking crisis resolution strategy was implemented swiftly; was transparent and received broad political support,” the EU executive stressed.