The vast majority of eurozone countries have seen their public debt ratio fall between 2021 and 2023, but the decline varies widely from country to country, ranging from 0.8 points of GDP in Latvia to 33.1 points of GDP in Greece (2.4 points in France). Understanding these differences requires measuring the impact of inflation which has affected all eurozone countries over the period.
This impact passes through many channels: the “mechanical” impact of prices (of GDP, consumer prices, etc.) increase on the denominator of the debt ratio, public spending and revenues via the usual indexation mechanisms, the effect of support measures implemented in response to price rise, the increase in the interest burden due to rising inflation and, finally, the impact of the loss of growth resulting from higher prices and interest rates.
An analysis of six eurozone countries (Germany, France, Italy, Spain, Portugal and Greece) shows that inflation would have helped to reduce public debt ratios in all countries between 2021 and 2023, but in different proportions: 9.5 points of GDP in France (2.5 points in 2022 and 7.0 points in 2023), 8.3 points in Germany, 9.0 points in Italy and Spain, 11.6 points in Portugal and 16.7 points in Greece.
While in some countries (Portugal, Greece), the reduction in the public debt ratio went beyond the effect of inflation alone, the positive impact of inflation is not fully reflected in the public debt ratios of countries like France: these differences can be linked to those relating to the initial health of public finances, as assessed through the gap between the general government balance and the debt-stabilising balance in 2021. In France, the inflationary ‘windfall’ on the public debt ratio has been largely offset by the impact of a high initial public deficit.