Images of debt

"Paint a perfect picture

Bring to life, a vision in one's mind

The beautiful ones

Always smash the picture

Always, every time" - Prince

The NY Times has published a couple of interesting article accompanied by some very illustrative graphics on Europe's debt situation. The first one is pentagram-looking map showing the PIIGS-countries web of debt and to whom they owe the most. You can see that Greece has a realtively small debt if you compare it to Italy and Spain. The shear size of Italy's and Spain's debt is almost difficult to grasp and when you consider that Italy owes France a sum equivalent to 20 % of french GDP you start to understand the danger of unstable economies with debts of these sizes.

Just imagine how much the U.S owes China.

The other disturbing thing which the map points out is that almost a third of Portugal's debt is owed to Spain, a very strong connection, which would make contagion alot worse if Portugal starts to experience something to similar to Greece. And if Spain's $1,1 trillion (!) starts to be questioned?

Source: Bill Marsh/NYTimes

The second graphic I recommend everybody to take a look at is this interactive debt map. It shows the development of national debt in the EU and also the EU-countries' relative size according to their GDP and finally the different interest rate spreads from Germany, where Sweden is the only one being able to borrow to the same cost as the germans. The most striking thing is that you clearly see that in 2000, before Greece was allowed to enter the Euro, it already had the same debt to GDP ratio it has today. Almost all the other countries held it under the limits set by the Growth and Stability Pact. The start to today's problems maybe?

Once again, the EU's lack of control and monitoring is really disconcerting.

Paul Krugman is right/wrong

"Whatever which way they go (right/wrong)
Whatever which way they go (right/wrong)
Whatever which way they go
They know they gonna owe
They soul to the road they choose
It don't matter if you win or loose
You still gotta pay them dues" -DMX

Greece certainly got to pay them dues.

I just read the article in El País that Paul Krugman wrote in the NY Times april 29th. In this article (which goes under the headline “The Euro Trap”) he is ones again bashing the “euro-mess”. Now, I am not saying that I know better than a Nobel Prize winner, I am just saying he is wrong. And when I say he is wrong I mean that he is wrong to keep blaming the euro as a currency for Europe’s current problems.

Krugman’s argument lies in that by entering the monetary, and by doing so giving up the monetary weapon of being able to adjust the exchange rate, the countries entered a trap. Well, by putting that way it sounds as if Krugman thinks countries was lured into entering the monetary union and then suddenly when crisis hit went like “Oh god, we can’t devalue our currency?!”.

To me the problem does not lie in having a common currency and giving up the ability to adjust the exchange rate. The problem is rather that the countries now being questioned by the markets, the best example of course being Greece, but also Portugal, Spain and in a lesser extent Ireland and Italy have not behaved according to what you could expect and the EU has not monitored sufficiently the development of its member countries.
   

Let us be honest, this would not have happened had Greece not lied and covered up their real deficit. Greece would not even have been allowed to enter the euro had their real statistics been known. The EU did the stupid thing to be ingenuous enough not to let Eurostat do a back up check on Greece’s statistics. In the best of worlds you would be able to trust Greece, but we all know this is not the best of worlds.

And now there are riots in Greece and their unions are protesting against the conditions that EU and the IMF has put on the 110 billion euros they are making available? Please, if you have a corrupt system that tinkers with official national accounts, you let people retire at 63 and give them very generous pensions (with borrowed money), you enter the Euro and take advantage of the good terms in the bond market it gives you and then you do nothing to reform your economy, to battle corruption or to raise productivity and then you are surprised that when the markets discover this they do NOT want to keep lending to you?
    

Equally surprising is that Spain seems surprised that their construction boom did not last and that basing almost all your growth on cheap and un qualified labor will lead to a fall in productivity.

I have a hard time seeing that this is happening because the Euro is a trap. It is happening because of european governments being populist and not making the decisions and chages that their respective countries really needs. The monetary union is not a federal state, it does not share a common fiscal system and I think that, although that is what you keep hearing the euro needs these days, it never will. The member states are too different and a common fiscal system would not be able to be that common anyway.

What the euro needs is more control and monitoring and governments willing to swallow their pride and do the hard work.
   

Will the euro last? Yes. Or to sound more like an economist; it depends (on the above).