1) Spending growth from 2011 two percentage points below nominal GDP growth rate.

The European Union’s (EU27) public debt could rise to 100 percent of GDP (gross domestic product) by 2014 - - a full year’s economic output - - unless governments take firm action to restore fiscal discipline, EU finance ministers will be warned today. Meanwhile, German insurance giant Allianz and the Lisbon Council, a Brussels-based think tank, say that the Eurozone could grow 2.0 percent on average in 2010, followed by a slightly slower expansion of 1.5 percent in 2011.

Public debt in the 16-country Eurozone was 66 percent of GDP in 2007 compared with the Euro Growth and Stability Pact target of 60 percent.

The risk that public debt may grow to 100 percent, is contained in a European Commission document prepared for November Eurogroup/Ecofin meetings of Europe’s finance ministers and central bankers.

The IMF warned last week that the debt ratio of the advanced G-20 nations could rise to 118% - - 40 percentage points above the pre-crisis level by 2014

Last week, in its latest six-month economic forecast, the Commission forecast that the Eurozone’s public debt would rise to 84 percent of GDP in 2010 and 88.2 per cent in 2011.

The Financial Times says today that the latest Commission document says, based on projections of a return to long-term pre-crisis growth levels, that “without consolidation, the gross debt-to-GDP ratio for the EU could reach 100 per cent of GDP as early as 2014, and keep on increasing.”

Allianz and the Lisbon Council say in a report that in the medium run, the expansion in Eurozone GDP will remain modest at annual rates of 1.8%.

It says for Europe, government expenditure starting in 2011 should be held two percentage points below nominal GDP growth (which is expected to be close to 4 percent per annum over the next four years). "This is a winning formula, which would do much to restore sustainability to public finances and safeguard today’s recovery," the report says.

The report warns that if exit strategies from the emergency fiscal stimulus and monetary policy measures, are delayed for too long, there will be a risk of entering a new boom-bust-cycle.

In most Eurozone countries, the report says the public debt-to-GDP ratio will soar by more than 10 percentage points in the two years from 2008 to 2010, with Spain, Greece and Ireland looking at 20 percentage-point gains and more. While public finances are in a sorry state in practically all the common currency area countries, the scale of the problem differs quite considerably. The consolidation required in Germany (with an expected budget deficit of 3 percent in 2009 and 4 - 4½ percent in 2010) is manageable, even though its economic stimulus packages are more sizeable, at over 3 percent of GDP, than the Eurozone average of not quite 2%. National finances are currently at their most critical in Spain, Portugal, Greece and Ireland. For the Eurozone, as a whole the report says the 2009 and 2010 public budget deficit will hit 5.7% of GDP.