Goldman's chief economist may call for a collective deep breath when it comes to the costs of the financial crisis, but for the EU, the collective itself may be the problem over the coming years. The European Commission has raised the deficit alert level for the U.K., Spain, Ireland, Greece and Latvia to "serious concern" for their efforts trying to avoid a complete economic meltdown. Having avoided disaster for now, the fiscal five of concern now get to focus on their new status quo in which "avoiding exponentially increasing debts is a policy challenge already in a medium-term perspective." While a situation like that could also be an issue for the US, unless we're going to potentially kick states out of the union for piling on obscene levels of debt, it's Washington's problem. However, to keep your EU membership card, there are standards.
In the EU, government debt may reach 100 percent of GDP as early as 2014 and keep increasing, the commission projected in today's report. In May, the commission forecast government debt would rise to near 80 percent of GDP by 2010 after averaging 73 percent this year. EU rules limit overall debt to 60 percent of GDP.
Unless either standards or debt levels change over the medium term, the new normal for the EU could look a lot more like Europe of the old.
U.K., Spain, Irish Deficits Are of 'Serious Concern,' EU Says [Bloomberg]