Hill piece, touted by Drudge, advanced Gregg's false comparison between "debt levels" of U.S., EU members

››› ››› ANDREW SEIFTER

A blog post at The Hill -- linked to by the Drudge Report -- reported that Sen. Judd Gregg argued President Obama's budget would lead to a higher national debt and annual deficits than the EU allows its member states. But The Hill did not mention that the U.S. national debt had already exceeded the EU threshold before Obama even took office, that some EU member states currently have deficits or national debts that exceed EU threshold levels, or that EU rules governing deficits include exemptions for circumstances such as "a severe economic downturn."

On March 27, the Drudge Report linked to a March 26 post on The Hill's Briefing Room blog that advanced Sen. Judd Gregg's (R-NH) false comparison of the estimated deficits and increased debt under President Obama's proposed budget and the deficits and debt of nations in the European Union. The Hill reported that Gregg argued Obama's budget would lead to a higher national debt and annual deficits than the EU allows its member states, and confirmed this was the case with regard to deficits, according to Congressional Budget Office (CBO) estimates. But The Hill did not mention that the U.S. national debt had already exceeded the threshold permitted by the EU before Obama even took office, that some EU member states currently have deficits or national debts that exceed EU threshold levels, or that EU rules governing deficits include exemptions for circumstances such as "a severe economic downturn."

The Hill article was based on Gregg's assertion during the March 26 edition of MSNBC's Morning Joe that Obama and the Democratic Congress will "take the deficit up to about 4 or 5 percent" of gross domestic product (GDP) and "the debt up to 80 percent" of GDP, and thereby leave the U.S. unable to meet the "threshold" required "to get into the EU." Citing Gregg's criticism of the Obama budget, The Hill reported that the EU requires "a budget deficit to be less than three percent, and requires a national debt beneath 60 percent of Gross Domestic Product (GDP)" and further reported that "[a]ccording to the Congressional Budget Office, the [U.S.] yearly budget deficit would fall well beyond that threshold in coming years."

Article 104 of the Treaty Establishing the European Community prohibits member states' "ratio of government debt to gross domestic product [from] exceed[ing] a reference value, unless the ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace." The Stability and Growth Pact set a "60% of GDP reference value for the debt ratio." However, according to the European Commission's report titled "Public Finances in EMU - 2008," as of 2008, "Eight Member States have a debt ratio above the 60% reference value," including Italy, which has a debt ratio of over 100 percent of GDP.

Moreover, the U.S. national debt had already well exceeded 60 percent of GDP prior to the time Obama took office. According to the U.S. Treasury Department, the national debt on January 19, 2009 -- the day before Obama's inauguration -- was approximately $10.63 trillion. According to the Commerce Department's Bureau of Economic Analysis, the U.S. GDP in current dollars was approximately $14.26 trillion in 2008. Therefore, the U.S. national debt was approximately 75 percent of GDP when Obama took office.

Five EU member states are also currently running deficits exceeding 3 percent of their GDP. The European Commission announced on March 24:

With the economic crisis eating away at public finances, budget deficits in five countries are expected to exceed the 3% of gross domestic product allowed by the EU.

Concerned about the effect on the stability of the eurozone, the commission is proposing deadlines for complying with the cap. All five - France, Greece, Ireland, Spain and the UK - already posted deficits above the 3% limit last year.

Ireland is asked to bring its budget deficit into line by 2013. France and Spain by 2012. Greece should take steps to get its deficit back under control in 2010. And the deadline for the UK would be 2013-14.

EU leaders have the final say on the proposed deadlines.

According to Article 104 of the Treaty Establishing the European Community, EU "Member States shall avoid excessive government deficits," and under most circumstances, an "excessive" deficit is defined as when "planned or actual government deficit to gross domestic product exceeds a reference value." The 1997 Resolution of the European Council on the Stability and Growth Pact defines this "reference value" as a deficit exceeding "3% of GDP." However, in addition to including an exemption for when the "the excess over the reference value is only exceptional and temporary and ... comes close to the reference value," the treaty establishing the European Community also prescribes that when the European Commission files a report documenting that a member state has surpassed the acceptable level of annual debt, the commission "take into account ... the medium-term economic and budgetary position of the Member State."

From Article 104 of the Treaty Establishing the European Community:

1. Member States shall avoid excessive government deficits.

2. The Commission shall monitor the development of the budgetary situation and of the stock of government debt in the Member States with a view to identifying gross errors. In particular it shall examine compliance with budgetary discipline on the basis of the following two criteria:

(a) whether the ratio of the planned or actual government deficit to gross domestic product exceeds a reference value, unless:

-- either the ratio has declined substantially and continuously and reached a level that comes close to the reference value,

-- or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value;

[...]

3. If a Member State does not fulfil the requirements under one or both of these criteria, the Commission shall prepare a report. The report of the Commission shall also take into account whether the government deficit exceeds government investment expenditure and take into account all other relevant factors, including the medium-term economic and budgetary position of the Member State.

The Commission may also prepare a report if, notwithstanding the fulfilment of the requirements under the criteria, it is of the opinion that there is a risk of an excessive deficit in a Member State.

Two other EU resolutions regulating excessive deficits -- the Council Resolution on speeding up and clarifying the implementation of the excessive deficit procedure and the Stability and Growth Pact -- also include language acknowledging exemptions under certain circumstances, such as during a "severe economic downturn."

From the Council Resolution on speeding up and clarifying the implementation of the excessive deficit procedure:

1. The excess of a government deficit over the reference value shall be considered exceptional and temporary, in accordance with Article 104c(2) (a), second indent, when resulting from an unusual event outside the control of the Member State concerned and which has a major impact on the financial position of the general government, or when resulting from a severe economic downturn.

In addition, the excess over the reference value shall be considered temporary if budgetary forecasts as provided by the Commission indicate that the deficit will fall below the reference value following the end of the unusual event or the severe economic downturn.

2. The Commission when preparing a report under Article 104c (3) shall, as a rule, consider an excess over the reference value resulting from a severe economic downturn to be exceptional only if there is an annual fall of real GDP of at least 2 %.

3. The Council when deciding, according to Article 104c (6), whether an excessive deficit exists, shall in its overall assessment take into account any observations made by the Member State showing that an annual fall of real GDP of less than 2 % is nevertheless exceptional in the light of further supporting evidence, in particular on the abruptness of the downturn or on the accumulated loss of output relative to past trends.

From the Stability and Growth Pact:

Adherence to the objective of sound budgetary positions close to balance or in surplus will allow all Member States to deal with normal cyclical fluctuations while keeping the government deficit within the reference value of 3 % of GDP.

[...]

5. [The member states] will correct excessive deficits as quickly as possible after their emergence; this correction should be completed no later than the year following the identification of the excessive deficit, unless there are special circumstances;

6. [The member states] are invited to make public, on their own initiative, recommendations made in accordance with Article 104c (7);

7. [The member states] commit themselves not to invoke the benefit of Article 2 (3) of the Council Regulation on speeding up and clarifying the excessive deficit procedure unless they are in severe recession; in evaluating whether the economic downturn is severe, the Member States will, as a rule, take as a reference point an annual fall in real GDP of at least 0,75 %.

[...]

3. [The commission] commits itself to prepare a report under Article 104c (3) whenever there is the risk of an excessive deficit or whenever the planned or actual government deficit exceeds the reference value of 3 % of GDP, thereby triggering the procedure under Article 104c (3);

4. [The commission] commits itself, in the event that the Commission considers that a deficit exceeding 3 % of GDP is not excessive and this opinion differs from that of the Economic and Financial Committee, to present in writing to the Council the reasons for its position;

5. [The commission] commits itself, following a request from the Council under Article 109d, to make, as a rule, a recommendation for a Council decision on whether an excessive deficit exists under Article 104c (6).

The Drudge Report linked to The Hill's blog post under the headline: "Gregg: USA couldn't even join EU due to debt levels..."

From the March 26 edition of MSNBC's Morning Joe:

JOE SCARBOROUGH (co-host): Well, Senator, you're not alone. The Congressional Budget Office and the new budget director that was appointed by the Democratic Congress says the numbers don't add up. It's unsustainable, and in effect, the Obama budget will bankrupt America. Why isn't Congress listening to the Congressional Budget Office?

GREGG: Well, because they're listening to the president, and the president and his party control the Congress. The problem here is that they're going to take the deficit up to about 4 or 5 percent of GDP and keep that at that level for the next 10 years and then beyond. And that takes the debt up to 80 percent -- the public debt up to 80 percent of gross national product. Now, you cannot, under any circumstances, sustain a system where the public debt is 80 percent of gross national product. To get in -- to try to put this in perspective, to get into the EU, a nation has to have its public debt at 30 percent or less of gross national product and its deficit under 3 percent. So essentially, we won't even be able to get into the EU if we wanted to -- which, hopefully, we don't -- but I mean, that's the type of threshold which we couldn't meet, because our government is going to get so large and the borrowing is going to get so huge.

The March 26 post by Michael O'Brien on The Hill's Briefing Room blog:

Gregg: U.S. couldn't even join EU due to debt levels

The United States wouldn't even be eligible to enter the European Union if it wanted to because of its debt levels, Sen. Judd Gregg (R-N.H.) claimed Thursday.

"We won't even be able to get into the EU if we wanted to," Gregg said this morning on MSNBC, "because our government is so large and so huge."

The European Union's Stability and Growth Pact (SGP) adopted in 1997 requires a budget deficit to be less than three percent, and requires a national debt beneath 60 percent of Gross Domestic Product (GDP).

"We've been lectured by France on the fact that we're not fiscally responsible right now," Gregg, the would-be commerce secretary, noted with incredulity.

According to the Congressional Budget Office, the yearly budget deficit would fall well beyond that threshold in coming years.

Still, Gregg expressed resignation with the likelihood that the Obama administration's proposed budget would emerge successfully from Congress.

"He's in charge, and they've got the votes here in Congress," he said.

Posted In
Economy, Budget
Network/Outlet
The Drudge Report, The Hill
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