New Method of Deficit Calculation May Help Struggling European Countries
A change in the way that a key statistic is calculated may make it easier for countries to fulfill austerity measures and other requirements imposed by international organizations, The Wall Street Journal reports.
In exchange for bailout money, several European countries agreed to undergo a series of austerity measures. However, as time has worn on, they have found the benchmarks for the completion of the measures difficult to match, especially given ongoing stagnant conditions in many economies.
One of the key conditions is that the so-called “structural deficit,” or the budget deficit that would exist if a country’s economy was operating at full strength, does not exceed 0.5 percent. This is different from how budget deficits are usually calculated and, in times of recession, it necessarily takes on a lower value than under the normal calculation. The discrepancy lies in exactly how to formulate “structural deficit.”