The combined budget deficit of the euro area fell to 3.7 percent of gross domestic product from 4.2 percent in 2011, Eurostat said Monday.

However, government debt increased to 90.6 percent of GDP from 87.3 percent in the prior year.

The European Commission estimated the deficit to narrow to 3.5 percent of GDP in 2012 and then to fall to 2.8 percent in 2013.

The lowest government deficit in percentage of GDP was registered by Estonia, followed by Sweden, Bulgaria and Luxembourg. Meanwhile, Germany posted a government surplus of 0.2 percent.

Despite widespread austerity measures, Spain's budget deficit widened to 10.6 percent of GDP in 2012 from 9.4 percent. The 2012 shortfall was bigger than the EU estimate of 10.2 percent.

The French budget deficit came in at 4.8 percent of economic output, down from 5.3 percent in 2011, but exceeded its official target of 4.5 percent.