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European austerity shows mixed results in 2012

By Pan Pylas

Associated Press

Published: Monday, April 22 2013 8:13 a.m. MDT

SPAIN — In spite of efforts to get a handle on its debts, Spain saw its budget deficit rise to 10.6 percent of GDP in 2012, the highest in the eurozone. It rose from 9.4 percent the year before as the country took 40 billion euros in rescue loans to help its banks. Excluding the rescue funds, Spain says its deficit last year improved to just under 7 percent, above the initially pledged target of 6.3 percent.

FRANCE — At first glance, Europe's second-biggest economy appears to have its public finances in relatively good health. Its deficit in 2012 fell to 4.8 percent of GDP from 5.3 percent the year before. However, there are growing concerns over the country's upcoming economic prospects as growth has stalled.

The French government originally promised to reduce its deficit to 3 percent of GDP this year, bringing it in line with European rules. But slow growth has knocked it off track, and the government has said the deficit will be 3.7 percent. France has a history of overly rosy forecasts, and some say the government's numbers are still too optimistic.

GERMANY — While many of its euro partners are struggling to get a grip on their public finances, Germany has done so and more. In 2012, it actually posted a budget surplus of 4.1 billion euros, in sharp contrast to the 20.2 billion euros deficit the year before. A number of factors have helped, including restrained spending, lower debt servicing costs and falling unemployment, which means less outlays for jobless benefits. But economists said state income was also significantly boosted by so-called "bracket creep" — the failure of the government to move tax rates up along with inflation. That means workers who are increasingly winning pay raises in the country's tight job market are pushed into paying higher rates — and more tax.

Elena Becatoros in Athens, Sarah DiLorenzo in Paris, Ciaran Giles in Madrid, Barry Hatton in Lisbon, David McHugh in Frankfurt and Shawn Pogatchnik in Dublin contributed to this report.

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