Proceedings from the ECFIN Workshop "The budgetary implications of structural reforms" - Brussels, 2 December 2005

Table 2. Gross and net debt development

1. 1995-2005

Source: OECD, Economic Outlook No. 77 database.

16. A similar pattern emerges when looking at growth performance and fiscal policy (Figure 4). In
the period 1999-2005, trend growth was only 1½ per cent per year on average in the three major euro area
countries, but 3¼ per cent in the smaller countries. Faster growth coincides with a strong fiscal
performance, while the contrary tends to be true for the slower-growing countries. Econometric work
provides evidence that fiscal consolidations are more likely to be undertaken and successful if trend
economic growth is high (von Hagen, 2002). At the same time, the smaller fast growing-economies were
able to maintain fairly rapid growth in public spending while keeping their government deficits in check.
Greece is of course an important exception with soaring spending and a whopping government deficit
despite strong growth.

Cyclically-adjusted

Source: OECD, Economic Outlook No. 77 database.

Figure 4. Trend growth and fiscal policy

average

Growth in real

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