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Originally published Monday, April 23, 2012 at 2:02 AM

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Eurozone cuts deficits but overall debt rises

The 17 countries that use the euro still face an uphill struggle to get a handle on their debt in spite of managing to slash government deficits to 4.1 percent of economic output in 2011, official data show.

AP Business Writer

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BRUSSELS —

The 17 countries that use the euro still face an uphill struggle to get a handle on their debt in spite of managing to slash government deficits to 4.1 percent of economic output in 2011, official data show.

Figures reported Monday by the European Union's statistics office confirmed the effects of harsh austerity programs across much of the eurozone, which in 2010 ran a deficit of 6.2 percent of gross domestic product. Yet despite these efforts, overall debt rose from 85.3 percent of GDP to 87.2 percent.

After a financial crisis that has now dragged on for close to five years, Monday's figures underline how difficult it will be for the eurozone to bring its deficits and debts back below the EU-stipulated limits of a deficit of 3 percent and debt of 60 percent of GDP.

Ireland's deficit of 13.1 percent of GDP was by far the highest as the bailed-out country continued to spend billions of euros bailing out its struggling banks. Eurostat expressed reservations about the 13.1 percent figure, amid disagreement with the Irish government whether (EURO)5.8 billion in aid to two nationalized banks should be included in the country's deficit.

Ireland, which was granted (EURO)67.5 billion in rescue loans from the EU and the International Monetary Fund in 2010, argues that the bank bailouts should not be included in the government deficit, as some of that money may be recovered. Without the bank aid, Ireland's deficit would have been 9.4 percent of GDP, still the highest in the EU.

In a statement, Ireland's finance ministry said the higher figure was the result of a technical "reclassification" of assets, pointing out that he 9.4 percent figure was far below the 10.6 percent target it has promised to reach in return for the rescue loans. In 2010, massive bank bailouts propelled Ireland's deficit to a record 31.2 percent of economic output. The finance ministry said this year's deficit should fall to 8.2 percent of GDP.

"The return of the underlying deficit to single figures is a positive development and reflects the very strong progress that has been made in restoring order to our public finances," Irish Finance Minister Michael Noonan said in a statement. "This progress has been due to the very significant adjustments that the Irish people have taken over the past number of years."

Greece's deficit of 9.1 percent of GDP was not much better than Ireland's, and Athens has already started injecting billions of euros into its own banks which are reeling from a restructuring of the country's government debts.

Across the 27-country EU, which also include non-euro nations like the U.K., the average 2011 deficit was 4.5 percent of GDP, down from 6.5 percent in 2010.

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Shawn Pogatchnik in Dublin contributed to this story.

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