To begin with, a deficit is when there is a negative difference between the money the government takes in, called receipts, and what the government spends, called outlays, each year. Receipts include the money the government receives from income, excise and social insurance taxes as well as from fees and other income. Outlays include all Federal spending ranging from medical benefits to interest payments on the debt. When there is a deficit, the Treasury must borrow the money needed for the government to pay its bills. Debt on the other hand, simply put, is the net accumulated borrowing by the federal government.

On the 26th of April 2011, Eurostat published an article showing the EU countries in 2010 with the largest government deficits as a percentage of GDP. The five countries that topped the list were Ireland (-32.4%), Greece (-10.5%), the United Kingdom (-10.4%), Spain (-9.2%) and Portugal (-9.1%). The lowest deficits were recorded in Luxembourg (-1.7%), Estonia (0.1%) which registered a slight government surplus in 2010, and Sweden (0%) which was in balance. On the whole, 21 member states recorded an improvement in their government balance relative to GDP in 2010 compared with 2009, while six recorded a worsening. The five EU member states that recorded the highest deficit had government debt ratios higher than 60% of GDP in 2010 along with 9 other members: Greece (142.8%), Ireland (96.2%), Portugal (93%), the United Kingdom (80%), and Spain (60.1%).

The largest deficit in proportion to the size of the country’s economy was seen in Ireland, where its deficit rocketed 20 percentage points - after it had to bail out its lenders – to 32.4%. Greece, which received a €110bn bail-out last year, was second with a deficit of 10.5%, followed by the UK. The data showed the Greek finances were in an even poorer state than previously thought, as the latest figure – while trimmed from the previous year’s 15.4% – was higher than the latest 9.6% estimate from the European Union and the International Monetary Fund.

At first glance, the fact that Britain had the third highest deficit in the European Union last year is alarming. It also means the UK had a bigger deficit, or annual shortfall, than the recently bailed-out Portugal and also Spain, which is said to be the next euro-using nation to potentially need international aid. However, the deficit is not all that matters as it also goes along with the total government debt. And there, the UK is not as bad after all. The UK’s public debt as a proportion of GDP stands at 80%. By comparison, Greece’s debts are 142.8% of GDP, Ireland’s 96.2% and Portugal’s 93%.

It is the interplay of the deficit and public debt that defines a nation’s fiscal sustainability. A small deficit is most likely sustainable, as long as the economy is growing in a faster pace than its deficit. This is also why economic growth is vital in reducing the nation’s debt burden. Besides that, a country’s financing requirements are also essential. In the case of UK, most of its borrowing is of long-term money, so although it has a large amount of debt it does not need to roll much over at any one time. The more a country has to raise in the markets during, or shortly after, a crisis, the riskier its debt profile becomes.