Police stand guard behind a banner reading: "new parliament and new budget" outside the Parliament as lawmakers debate budget spending cuts for 2013 in Madrid, Spain, Tuesday, Oct. 23, 2012. Spain's economy continued to shrink in the third quarter, contracting by 0.4 percent compared with the previous three months, according to central bank estimates Tuesday that will increase pressure on Prime Minister Mariano Rajoy to seek financial help from Europe. Several thousand people were expected to take part in a demonstration later Tuesday outside Parliament as lawmakers debate budget spending cuts for 2013. (AP Photo/Andres Kudacki)
LONDON (AP) — In spite of years of harsh spending cuts and tax increases, Europe's debt problems are getting worse.
Official figures showed Wednesday that the total debt of the 17 countries that use the single currency at the end of the second quarter was worth 90 percent of the value of the group's economy — the highest level since the euro was launched in 1999.
The rise from the previous quarter's 88.2 percent and the previous year's equivalent of 87.1 percent, as reported by Eurostat, the EU's statistics office, is a result of the eurozone's economic problems — which are making it harder for countries to handle their debts.
"The euro area economy remains stuck in a rut," said James Ashley, senior European economist at RBC Capital Markets.
According to Eurostat five of the countries that use the euro are in recession — Greece, Spain, Italy, Portugal, and Cyprus. Many analysts expect the eurozone to slip back into recession in the third quarter of the year when official figures are published next month. A recession is technically defined as two quarters of negative growth in a row.
Other figures Wednesday pointed to a deepening economic crisis in the eurozone. The purchasing managers' index — a gauge of business activity — from financial information company Markit fell from the previous month's 46.1 to 45.8 in October — its lowest level in more than three years. Any figure below 50 indicates a contraction in activity.
Meanwhile, a closely watched survey from the Ifo Institute found business confidence in Germany, Europe's biggest economy, confounded expectations of a modest increase and dropped for the sixth month in a row. Ifo's key figure for October dropped to 100 from 101.4 in September.
Germany has been the main reason why the eurozone has not fallen into recession. The country's powerhouse exporters, such as Volkswagen and BMW, have taken a slice of rising trade volumes around the world while its consumers have shown an increasing appetite to spend. However, the country's economy has recently lost its momentum as the debt troubles on its doorstep have weighed on economic confidence.
A shrinking economy makes the value of a country's debt as a proportion of the size of its economy worse. Over the past year, Italy's debt burden, for example, has risen from 123.7 percent in the first quarter to 126.1 percent in the second quarter — that's come while its economy has shrunk for four straight quarters.
Greece's finances, though, are in a league of their own. The country, which is struggling to convince debt inspectors that it's fulfilling pledges it has made in return for billions of euros worth of bailout cash, saw the biggest quarterly increase in its debt burden to 150.3 percent of national income in the second quarter from 136.9 percent in the first.
The increase comes despite a dramatic fall in debt in the first quarter after Greece had successfully negotiated a deal with private bondholders to accept a writedown of their Greek holdings. The country's debt was reduced to €280 billion in the first quarter from €341 billion in the second quarter of 2011 as a result of the writedown.
But any advantage gained is slowly being whittled away by the country's deep recession, which appears headed for a sixth year. Interest on the debt, as well as continued budget deficits, pushed the debt back above €300 billion in the second quarter of 2012.
In the second quarter of 2012, the Greek economy was 6.2 percent smaller than the same period the previous year and all forecasters think the recession will last for a while longer, especially as the country readies to implement even more austerity measures. Lower wages, for example, will impact consumer spending, often a vital ingredient of economic growth.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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