Czech Republic’s Rising Debt and EU’s Decreasing Debt: An Overview

In the second quarter, the debt of the European Union decreased to 83.1% of gross domestic product (GDP) from 85.9% the previous year, according to a preliminary report by the statistical office Eurostat. However, in the Czech Republic, the debt continues to rise and reached 44.3% of GDP by the end of the second quarter, compared to 43.5% the previous year, with the state debt reaching a record high.

The highest debt in the EU is still held by Greece, where it reached 166.5% of GDP, followed by Italy with 142.4% and France with 111.9%. Debt exceeding 100% of the economic output is present in six EU countries. On the other hand, Estonia had the lowest debt at the end of the second quarter, with a value of 18.5%, followed by Bulgaria and then Luxembourg.

The total debt of the EU increased to over 13.67 trillion euros (around 337 trillion CZK) by the end of the second quarter, compared to 13.15 trillion euros the previous year. In the Czech Republic, the state debt rose to over 3.15 trillion korunas, reaching a record high compared to 2.79 trillion korunas a year ago.

The EU’s and Czech Republic’s debt decreased compared to the end of the first quarter, which stood at 83.4% and 44.5% of GDP, respectively. As for the eurozone alone, its debt decreased to 90.3% in the second quarter, down from 90.7% at the end of the first quarter and 93.5% the previous year.

In other news, the German government expects a decline in GDP this year. The deficit of public finances in the EU reached 3.2% of GDP in the second quarter, increasing from a deficit of 2.3% in the same period last year, according to Eurostat. The debt rose to 3.3% of GDP in the Czech Republic from 2.9% the previous year.

Looking at the recent history of the Czech Republic since 1993, the state debt was at its lowest between 1996 and 1998, when it amounted to nine percent of GDP. This was when Václav Klaus served as the Prime Minister. From 1999 to 2013, the debt steadily increased from ten percent to 41% of GDP.

During this period, the government was initially led by ČSSD’s Miloš Zeman, Vladimír Špidla, Stanislav Gross, and Jiří Paroubek, followed by ODS’s Mirek Topolánek and Petr Nečas, and two independent Prime Ministers, Jan Fischer and Jiří Rusnok. Since then, until the pandemic, the debt has decreased, reaching 29% of GDP in 2019. The Ministers of Finance during those years were Andrej Babiš and later Alena Schillerová, both from the ANO movement.

The fiscal rules of the European Union, known as the Stability and Growth Pact, require that public debt does not exceed 60% of GDP and budget deficits do not exceed three percent of GDP. However, due to the economic impact of the COVID-19 pandemic, the validity of the pact was suspended in 2020. Its exceptional relaxation was extended, mainly due to the energy crisis partly caused by the war in Ukraine.