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Case studies 63<br />
is also still rising. (While Italy is not similar to the euro periphery in relation to<br />
net international investment position, these countries are grouped together in<br />
relation to common concerns about public debt.)<br />
In particular, Italy (133%), Portugal (129%) and Ireland (124%) look worrisome<br />
in terms of the level of public debt (considering also the very disappointing<br />
nominal growth trends), while the still high deficit in Spain means that its public<br />
debt trajectory remains a concern. Importantly, the efforts to deleverage the<br />
public sectors in these countries through government programmes have largely<br />
underachieved – the 2013 public debt ratios in Spain, Italy, Portugal and Greece<br />
exceeded the targets set early in 2012 by more than 10 percentage points. These<br />
debt dynamics reflect large overshooting in the fiscal deficit, particularly in Spain<br />
where the 2013 ratio was still twice as large as the target set only a year earlier<br />
(-7.0% versus a target of -3.0%). This overshooting reflects the adverse loop (see<br />
Section 5.1) between procyclical austerity measures and growth in the absence<br />
of other supportive policies. The large gaps between projections and outcomes<br />
provide a cautionary tale about the difficulty of reducing debt-to-income ratios<br />
sharply through austerity policies under such conditions.<br />
Figures 4.23A and 4.23B show the evolution of debt levels over 2003-12 for the<br />
household sector and the non-financial corporate sector. Figure 4.23A shows that,<br />
in each country, household debt grew more rapidly than GDP during the 2003-<br />
07 pre-crisis period, with the expansion especially strong in Ireland (the debts<br />
were primarily accumulated to fund housing investment). Since the onset of the<br />
crisis, we can see some deleveraging in countries that have been more exposed<br />
to the housing crisis (Ireland, Spain and Portugal), while France and Italy have<br />
not adjusted and Greek leverage has been growing, driven by the collapse in the<br />
denominator rather than by extra consumer borrowing.