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Europe's Web Of Debt

142 points by arunabh 15y ago

chrismealy 15y ago
Be a lot better if Germany, France, and the US were on there. You'd see how tiny Greece is in the big picture. A lot of people are going to get hurt just to teach a few Greeks a lesson.
- dylangs1030 15y ago
  I agree, but putting the U.S. on there would involve North America and, to be accurate, Asia too.
- jeffdavis 15y ago
  "A lot of people are going to get hurt just to teach a few Greeks a lesson." What is happening now that you object to, and what solution do you propose?
  - barrkel 15y ago
    Greece is being forced to destroy its economy through pro-cyclical austerity; right at the bottom, when the economy is doing poorly, it is being forced to reduce economic activity further by cutting government spending. The solution is for the ECB to monetize government debt, and combine that with much tighter fiscal monitoring to ensure it isn't abused; but the ECB is forbidden by treaty from lending to governments and the German public is implacably opposed to changing this.
    - nakkiel 15y ago
      This is not correct. At least you can't say that without depicting the full picture. Greece is a country that can't afford it operations. It has no economic growth and large unemployment. It survives by borrowing money. In a "normal" situation, it would go bankrupt and its money would be devaluated. Then in several troubled years it could experience growth again because with a devaluated money you are in a better economic position to make things and sell them. In reallity, Greece is part of the Euro zone so its money is the Euro and it has no control over it. Greece's situation is comparable to that of California (although not to the same extent). While many economist agree that austerity doesn't bring growth, at least it stops the bleeding. Also, we "don't know better" is the general concensus. Not to mention it worked for Iceland.
      - scotch_drinker 15y ago
        In a normal situation, they wouldn't necessarily have to go bankrupt. If they had a national lender of last resort, they could essentially monetize the debt, causing inflation, and pay their way out with their devalued currency. The Greek economy is not fundamentally different than it was when it was accepted into the EU. France and Germany knew that then and know it now. They just want to have their cake and eat it too. They loaned money to a country that had little hope of paying it back. It's fun to say "it's all the debtor's fault" but there are two sides to every debt relationship and in this case, as much fault lies with France and Germany as it does with Greece. Also, Iceland didn't go through the forced austerity that is being pushed upon the Greeks. The Icelandic government essentially defaulted when it nationalized the banks. There was no "We'll give you a bailout if you crush your economy through austerity programs" from the EU because Iceland is not an EU country. Austerity only stops the bleeding to foreign creditors at the expense of the country's citizens. It does not stop the bleeding internally in the local economy. The Greek population knows this and that's why they are strongly resisting.
      - barrkel 15y ago
        I fully agree that if Greece had its own currency, devaluation would be a viable solution, but it doesn't, so there's no point talking about it. Government spending isn't "bleeding"; economies are feedback systems, and changes to spending in one location directly reduces income in other areas, which results in lost productivity until the system readjusts. Adjusting the system when productivity is already low is one of the worst times to do it, because there's very little to take up the slack. On the other hand, Greece probably needed a crisis like this in order for it to face up to its governance problems. I don't know why you quoted "don't know better"; I didn't say that, nor anything like it, as far as I understand. Iceland is not very relevant, again, since it had its own currency; in sudden devaluation, it reduced the value of monetary wealth of its citizens massively. You could view it has a massive government appropriation of citizen assets.
        meric 15y ago
        >> massive government appropriation of citizen assets. Hardly; The government got itself into so much debt in the first place because of tax evasion lowering tax revenue and high government expenditure. i.e The government spent too much servicing its own people, now it needs to grab the citizens' assets back to repay it all.
    - meric 15y ago
      Austerity may cause internal devaluation. Lack of government spending - economy activity reduced and prices deflate. Lower prices means exports increase and imports decrease, eventually allowing the economy to grow again. At the same time, debts are paid and the government will have more money to spend again. Yes, deflation is dangerous, but here it is the only way to get around the fixed Euro currency to lower prices.
      - jeffdavis 15y ago
        "Austerity may cause internal devaluation." I'm confused. Devaluation is inflation, right? You're saying that lower government spending may lead to inflation? And you think deflation is the more desirable outcome? I'm not disagreeing, but I haven't heard that line of reasoning before.
        meric 15y ago
        Devaluation is deflation. Normally when the government gives a whole stack of money to its citizens, the country's currency inflates. Its exports will then be cheaper to others. Greece cannot do this; Its currency is fixed with its major trading partners. There is no way to lower prices of its exports... besides deflation. There's two ways out of it. Quit the Euro (default on debts) and inflate the economy to lower export prices (look where that got the US, I'm starting to be skeptical of this tactic), or cut public spending, start deflation, to lower export prices. Since in France, Germany, prices are not deflating, deflation in Greece will lower Greece's export prices. While consumers in Greece may stop spending... "Ooo my money goes up in value by simply holding it", importers in France and Germany will not stop spending "Buying from Greece is cheaper than buying from France, Germany. No brainer". They're not going to stop spending because if they stop spending money to import they also stop earning money from selling the imports to their home countries. Lower export prices -> Increased exports. Eventually, hopefully, it will bring the country back into growth. I think deflation is more dangerous when your currency isn't fixed with others, because then banks/companies will be able to manipulate your currency to take advantage of the deflation in the country. When the currency is fixed, there is just as much point for an importer to play with currency as US Steel plays with US Dollars. (i.e Not their business). This is all what I think Germany is trying to make Greece do. I don't have evidence for any of it.
    - artsrc 15y ago
      Destroying the economy is the worst thing for Greek bond holders. However I don't know if real damage is being done. Greece has import agriculture and tourist industries. Are the fields being left untendered? Is are there hotels being left half constructed? I agree that unemployment is waste of human capital. Perhaps the government should have just halved all there employees wages rather than laying them off?
      - gaius 15y ago
        are there hotels being left half constructed? Yes, but this is normal for Greece; leave your building unfinished, even if only cosmetically, and you pay no tax on it. A desperately needed tweak to the law is to start taxing buildings when they are actually used.
- RockyMcNuts 15y ago
  It's gotten bigger than Greece... if the recovery was intact it would just be the weak countries like Greece that couldn't pay their debts, if the economy dips then the big countries like Spain and Italy can't either. It turns into a death spiral, the more people panic over the crisis, the worse the economy gets, the more countries are at risk of default. Meanwhile, German economic policy essentially consists of: 1) Tight fiscal policy to crush any signs of a recovery. 2) Tight monetary policy to crush any signs of recovery. 3) Tie yourself to some profligate countries so that you have a cheap exchange rate and can sell s***loads of exports. 4) When the countries you provided vendor finance to start having trouble paying you back insist that they follow 1) and 2). 5) Wonder why everyone hates you. ..."It's a pulley system - you throw everyone over the cliff and let the rope take you higher. But eventually you reach the pulley." http://macro-man.blogspot.com/2011/11/raising-dead-and-axis-of-evil.html http://macro-man.blogspot.com/2011/11/raising-dead-and-axis-... reminds me of Air France 447, the people running the show initially reacted by pushing the stick in the wrong direction, they're still way behind the curve, by the time they react with sufficient force, might be too late, crash of markets, governments defaulting, countries abandoning the Euro.
  - DuncanIdaho 15y ago
    For one I believe that Germans know what they're doing. They might be a little bit too bent on saving Framany's banks - however if these banks drop then Framany drops. If that happens Eurozone has no steering wheel and no engine to get anywhere. So in fact it is essential that in eurozone: 1. Germany and France be saved from the worst. 2. Germany and France beat the other juvenile countries into fiscal submission. 3. The new "germanized" europe lifts itself out of ash. Whatever people think, the whole point of eurozone is "germanization" of Europe. It's not as some people state that Germany is trying to occupy the Europe. The fact is that Europe wants to occupy Germany. Thats the whole point, the whole Europe and its citizenry would like to live in Germany. And Germans know full well what they're doing - I'd even dare to say that they know what they're doing even better than 'mericans. Don't forget that Germany annexed DDR 20 years ago and that DDR was in much worse shape than any of PIIGS. Alo Angela Merkl along with many people in charge, grew up in DDR.
- Confusion 15y ago
  If you think this is about 'teaching a few Greeks a lesson', then you really don't understand the severity and complexity of the current situation. The Greeks are a symptom that can't be dealt with by being nice to them, because then they won't change a damned thing. Why would they, if the others want to keep them in the Euro so much they can get away with anything they want? And worse, by not being severe with them, the other countries will think similarly and cater to their population instead of the population of the Eurozone as a whole. That's just how the incentives are, so they are forced to impose strong counter-incentives.
wavephorm 15y ago
The more I read and hear about the debt problems of the Eurozone, I wonder how France and Germany ever got duped into joining in the first place.
- jvehent 15y ago
  They didn't join anything. They created it to extend their markets with a common currency. The others joined in.
  - kleiba 15y ago
    Well, it wasn't Germany and France alone who created the Euro zone...
    - nakkiel 15y ago
      It was. France and Germany have historically been the driving political forces behind the European bodies. This is why now there is a leadership crisis in Europe: those two countries are still filling a leadership gap and thus criticized by other countries for taking decisions.
      - ticks 15y ago
        It has been quite the eye opener to watch France and Germany drive the proceedings. I was quite supportive of the EU and the Euro, but now I'm glad we (the UK) stayed out of the Euro. It would appear that this crisis is being used to move power away from the "weaker" countries.
        nakkiel 15y ago
        As you are from the UK, I will warn you. Every news you read from a British source should be cross-checked with another source (just so you have another take on it). Don't get me wrong, I have no animosity toward the UK or anything like this. I also find BBC's reporting to be of very high quality and I watch it daily. However there is total unfairness regarding the Europe thing at the BBC. Basically I'd sum their coverage as "See what's going on? We told you so!". That said, I disagree with you regarding the "stay out of the Euro". I now think that it is sad that the UK didn't get more involved in the Europe. The UK is probably the only country that could have weighed enough to get France and Germany to actually implement another management. Europe is victim of the "small team" problem. It's a small team so it's ok if the two biggest guys manage it hand in hand because everybody's just ok with that and nobody can really challenge them. Problem arise with tougher times like we experience. You guys should have really pushed us :) My opinion: we needed you to kick us and tell us it's not ok to just take the lead; it needs to be formalized AND democratic.
puredemo 15y ago
What countries are running surpluses?
- waitwhat 15y ago
  http://www.economist.com/blogs/dailychart/2011/05/europes_economies http://www.economist.com/blogs/dailychart/2011/05/europes_ec... > Debt > Budget Balance Sweden and Estonia
  - waitwhat 15y ago
    I should note that Sweden has its own (floating) currency, making Estonia the only Euro-zone country running a surplus.
  - fauigerzigerk 15y ago
    Italy is running a primary budget surplus, meaning it is reducing debt.
    - justincormack 15y ago
      No, the primary surplus is before interest payments. After interest payments it runs a deficit, so it is still borrowing to pay the interest bill, so debt is increasing.
      - fauigerzigerk 15y ago
        That's true in absolute numbers. But if a country is able to run a primary surplus over the long run, it means that the growth of its economy and its tax revenues is keeping up with the additional nominal debt. So the debt grows in absolute numbers but not relative to GDP. That's why the primary balance is generally considered a good measure for debt sustainability. Still, you are right that they may not be reducing debt, but at least they are keeping it stable.
        mseebach 15y ago
mrb 15y ago
This diagram is 1.5 years old (May 2010). How much has changed since then?
- nakkiel 15y ago
  I can't find that article anymore but a few days ago I read an article showing that since August, French banks have largely reduced their exposure to other European countries' debt. By largely I'm speaking of figures ranging from 40% to 80%, depending on the Bank. What was more disturbing in that article is that it clearly shows that the activity of those banks is still very sane and that they made profits and all indicators are green even through the last few months. In other words, besides market speculation, nothing justifies the 20% drop of the CAC40 or 50% drop for certain groups (Carrefour is now worth less on the market than their assets). I'll reach back when I find the article. Edit: I believe it's this article, but it's now behind a paywall: http://lecrible.lesechos.fr/?Assurance-vie-transparence-et
  - hvass 15y ago
    Here is a related link from the WSJ, essentially saying that French banks are reducing their exposure to Greek debt (and to other governments as well): http://blogs.wsj.com/source/2011/11/08/french-banks-pleasing-the-markets-at-last/ http://blogs.wsj.com/source/2011/11/08/french-banks-pleasing...
  - enqk 15y ago
    "Carrefous is now worth less on the market than their assets" Maybe equity value drop is predicting a drop in asset value?
    - nakkiel 15y ago
      I'd say that their assets in China only are worth more than this. Carrefour has literally withdrawn from Thailand (they had a large and well placed fleet of shops and a good reputation) to invest everything in China. They had long been in China before that but that's just to give an idea of how seriously they take the Chinese market. Their strategy is to be fully implemented throughout the country when the middle class fully emerges. If such a middle class ever emerges, they will be terribly wealthy.
perlgeek 15y ago
It would be interesting to see the per-capita debt additionally to the total debt.
- Someone 15y ago
  per-capita debt as a fraction of per-capita income or possessions would be more interesting; a millionnaire or someone with a solid 200K income with a 100k mortgage is not a problem.
Tichy 15y ago
Sadly most edges seem to be rather one-way - otherwise it might have been a fun exercise to cancel everything out.
- forrestthewoods 15y ago
  Given that it's not entirely one-way why can't it be partially cancelled out? Sure it wouldn't go the distance but why is that step not made?
  - waitwhat 15y ago
    The hand-wavey text in the top-left explains that "Banks and governments in these five shaky economies owe each other many billions of euros." So while it does look like "Greece owes Ireland $8.5bn" is at least partially cancelled out by "Ireland owes Greece $0.8bn", I would expect that these statements roughly translate to "The Greek government owes various Irish banks $8.5bn" and "The Irish government owes various Greek banks $0.8bn", which unfortunately don't cancel each other out.
  - ianpurton 15y ago
    The debts are probably government bonds with different maturities and interest payments being held by different banks. I'm not sure where the information from this diagram comes from because I didn't think a banks exposure to different countries was public knowledge.
    - justincormack 15y ago
      That data was released as part of the European bank stability tests. You can get the spreadsheets here http://www.eba.europa.eu/EU-wide-stress-testing/2011/2011-EU-wide-stress-test-results.aspx http://www.eba.europa.eu/EU-wide-stress-testing/2011/2011-EU... Historically it was not available.
- Tuna-Fish 15y ago
  The various governments largely don't act as lenders. When they say "Portugal owes Spain $86 Billion", they actually mean "The government of Portugal owes various Spanish institutions and individuals, mainly banks and retirement funds, a total of $86 Billion". None of it cancels out.
mikemoka 15y ago
The diagram, as others have said, is old, here is probably the most updated version: http://www.thepeakeffect.com/2011/09/europes-web-of-debt-update.html http://www.thepeakeffect.com/2011/09/europes-web-of-debt-upd... no mention of sources though.
- sixtofour 15y ago
  I believe the graphic you link comes from here: http://www.eudebtwriteoff.com/ http://www.eudebtwriteoff.com/ That is a site put up by one of the authors of a report exploring the idea that the PIIGS should write off their mutual net balance debt: if I owe you $10, and you owe me $2, then we strike the $2, and I owe you $8 while you owe me $0, reducing loss by friction. That report (pdf) is linked from the site. I found that site by searching for the filename of the image (EURBEF.png), and looking for a post or article that uses it and cites its source. This is one such post: http://www.zerohedge.com/news/european-sovereign-debt-cant-we-all-just-net-along http://www.zerohedge.com/news/european-sovereign-debt-cant-w...
  - deleted 15y ago
    [deleted]
  - mrb 15y ago
    This is shocking. A simple, error-proof, accounting move with zero side effects... What are we waiting to do this?
    - sixtofour 15y ago
      Some people make money from friction.
      - mikemoka 15y ago
        It's way more complex than that. The debt includes private and public institutions, and countries from outside Europe.
donaldc 15y ago
For me, the most shocking thing in the web is that Ireland and its banks owe $867 billion. That's approximately $188,000 for every man, woman, and child in Ireland.
- justincormack 15y ago
  This was largely shifted from the banks to the Irish government, as the bank bailout was Euro 100,000 per head. All the fallout from a property boom.
- dhughes 15y ago
  Ireland has (or had?) a pretty good economy too with well paying aerospace and other tech industry jobs.
  - sudonim 15y ago
    I think what you're seeing now is the cost of that "good economy".
  - barry-cotter 15y ago
    Not that many although the tech industry doesn't seem to be going anywhere thank fate. Still, it's not like those jobs are even theoretically available to more than maybe a quarter of the population. One thing that surprised me when I read it[0] was the huge difference in profitability of domestic and multinational firms in Ireland per employee in the same sector. Twice as productive, twice. [0]http://www.gillmacmillan.ie/economics/economics/economy-of-ireland-11th-edition http://www.gillmacmillan.ie/economics/economics/economy-of-i...
    - barrkel 15y ago
      This is largely a product of booking European profits through Irish subsidiaries. (Irishman myself, FWIW.)
      - dhughes 15y ago
johnbatch 15y ago
The source is from Bank for International Settlements, which has a nice interactive web app for doing your own analysis. http://stats.bis.org/ http://stats.bis.org/ The data in this table is almost a year and a half old.

142 points by arunabh 15y ago

Be a lot better if Germany, France, and the US were on there. You'd see how tiny Greece is in the big picture. A lot of people are going to get hurt just to teach a few Greeks a lesson.

dylangs1030 15y ago
I agree, but putting the U.S. on there would involve North America and, to be accurate, Asia too.
jeffdavis 15y ago
"A lot of people are going to get hurt just to teach a few Greeks a lesson." What is happening now that you object to, and what solution do you propose?
- barrkel 15y ago
  Greece is being forced to destroy its economy through pro-cyclical austerity; right at the bottom, when the economy is doing poorly, it is being forced to reduce economic activity further by cutting government spending. The solution is for the ECB to monetize government debt, and combine that with much tighter fiscal monitoring to ensure it isn't abused; but the ECB is forbidden by treaty from lending to governments and the German public is implacably opposed to changing this.
  - nakkiel 15y ago
    This is not correct. At least you can't say that without depicting the full picture. Greece is a country that can't afford it operations. It has no economic growth and large unemployment. It survives by borrowing money. In a "normal" situation, it would go bankrupt and its money would be devaluated. Then in several troubled years it could experience growth again because with a devaluated money you are in a better economic position to make things and sell them. In reallity, Greece is part of the Euro zone so its money is the Euro and it has no control over it. Greece's situation is comparable to that of California (although not to the same extent). While many economist agree that austerity doesn't bring growth, at least it stops the bleeding. Also, we "don't know better" is the general concensus. Not to mention it worked for Iceland.
    - scotch_drinker 15y ago
      In a normal situation, they wouldn't necessarily have to go bankrupt. If they had a national lender of last resort, they could essentially monetize the debt, causing inflation, and pay their way out with their devalued currency. The Greek economy is not fundamentally different than it was when it was accepted into the EU. France and Germany knew that then and know it now. They just want to have their cake and eat it too. They loaned money to a country that had little hope of paying it back. It's fun to say "it's all the debtor's fault" but there are two sides to every debt relationship and in this case, as much fault lies with France and Germany as it does with Greece. Also, Iceland didn't go through the forced austerity that is being pushed upon the Greeks. The Icelandic government essentially defaulted when it nationalized the banks. There was no "We'll give you a bailout if you crush your economy through austerity programs" from the EU because Iceland is not an EU country. Austerity only stops the bleeding to foreign creditors at the expense of the country's citizens. It does not stop the bleeding internally in the local economy. The Greek population knows this and that's why they are strongly resisting.
    - barrkel 15y ago
      I fully agree that if Greece had its own currency, devaluation would be a viable solution, but it doesn't, so there's no point talking about it. Government spending isn't "bleeding"; economies are feedback systems, and changes to spending in one location directly reduces income in other areas, which results in lost productivity until the system readjusts. Adjusting the system when productivity is already low is one of the worst times to do it, because there's very little to take up the slack. On the other hand, Greece probably needed a crisis like this in order for it to face up to its governance problems. I don't know why you quoted "don't know better"; I didn't say that, nor anything like it, as far as I understand. Iceland is not very relevant, again, since it had its own currency; in sudden devaluation, it reduced the value of monetary wealth of its citizens massively. You could view it has a massive government appropriation of citizen assets.
      - meric 15y ago
        >> massive government appropriation of citizen assets. Hardly; The government got itself into so much debt in the first place because of tax evasion lowering tax revenue and high government expenditure. i.e The government spent too much servicing its own people, now it needs to grab the citizens' assets back to repay it all.
  - meric 15y ago
    Austerity may cause internal devaluation. Lack of government spending - economy activity reduced and prices deflate. Lower prices means exports increase and imports decrease, eventually allowing the economy to grow again. At the same time, debts are paid and the government will have more money to spend again. Yes, deflation is dangerous, but here it is the only way to get around the fixed Euro currency to lower prices.
    - jeffdavis 15y ago
      "Austerity may cause internal devaluation." I'm confused. Devaluation is inflation, right? You're saying that lower government spending may lead to inflation? And you think deflation is the more desirable outcome? I'm not disagreeing, but I haven't heard that line of reasoning before.
      - meric 15y ago
        Devaluation is deflation. Normally when the government gives a whole stack of money to its citizens, the country's currency inflates. Its exports will then be cheaper to others. Greece cannot do this; Its currency is fixed with its major trading partners. There is no way to lower prices of its exports... besides deflation. There's two ways out of it. Quit the Euro (default on debts) and inflate the economy to lower export prices (look where that got the US, I'm starting to be skeptical of this tactic), or cut public spending, start deflation, to lower export prices. Since in France, Germany, prices are not deflating, deflation in Greece will lower Greece's export prices. While consumers in Greece may stop spending... "Ooo my money goes up in value by simply holding it", importers in France and Germany will not stop spending "Buying from Greece is cheaper than buying from France, Germany. No brainer". They're not going to stop spending because if they stop spending money to import they also stop earning money from selling the imports to their home countries. Lower export prices -> Increased exports. Eventually, hopefully, it will bring the country back into growth. I think deflation is more dangerous when your currency isn't fixed with others, because then banks/companies will be able to manipulate your currency to take advantage of the deflation in the country. When the currency is fixed, there is just as much point for an importer to play with currency as US Steel plays with US Dollars. (i.e Not their business). This is all what I think Germany is trying to make Greece do. I don't have evidence for any of it.
  - artsrc 15y ago
    Destroying the economy is the worst thing for Greek bond holders. However I don't know if real damage is being done. Greece has import agriculture and tourist industries. Are the fields being left untendered? Is are there hotels being left half constructed? I agree that unemployment is waste of human capital. Perhaps the government should have just halved all there employees wages rather than laying them off?
    - gaius 15y ago
      are there hotels being left half constructed? Yes, but this is normal for Greece; leave your building unfinished, even if only cosmetically, and you pay no tax on it. A desperately needed tweak to the law is to start taxing buildings when they are actually used.
RockyMcNuts 15y ago
It's gotten bigger than Greece... if the recovery was intact it would just be the weak countries like Greece that couldn't pay their debts, if the economy dips then the big countries like Spain and Italy can't either. It turns into a death spiral, the more people panic over the crisis, the worse the economy gets, the more countries are at risk of default. Meanwhile, German economic policy essentially consists of: 1) Tight fiscal policy to crush any signs of a recovery. 2) Tight monetary policy to crush any signs of recovery. 3) Tie yourself to some profligate countries so that you have a cheap exchange rate and can sell s***loads of exports. 4) When the countries you provided vendor finance to start having trouble paying you back insist that they follow 1) and 2). 5) Wonder why everyone hates you. ..."It's a pulley system - you throw everyone over the cliff and let the rope take you higher. But eventually you reach the pulley." http://macro-man.blogspot.com/2011/11/raising-dead-and-axis-of-evil.html http://macro-man.blogspot.com/2011/11/raising-dead-and-axis-... reminds me of Air France 447, the people running the show initially reacted by pushing the stick in the wrong direction, they're still way behind the curve, by the time they react with sufficient force, might be too late, crash of markets, governments defaulting, countries abandoning the Euro.
- DuncanIdaho 15y ago
  For one I believe that Germans know what they're doing. They might be a little bit too bent on saving Framany's banks - however if these banks drop then Framany drops. If that happens Eurozone has no steering wheel and no engine to get anywhere. So in fact it is essential that in eurozone: 1. Germany and France be saved from the worst. 2. Germany and France beat the other juvenile countries into fiscal submission. 3. The new "germanized" europe lifts itself out of ash. Whatever people think, the whole point of eurozone is "germanization" of Europe. It's not as some people state that Germany is trying to occupy the Europe. The fact is that Europe wants to occupy Germany. Thats the whole point, the whole Europe and its citizenry would like to live in Germany. And Germans know full well what they're doing - I'd even dare to say that they know what they're doing even better than 'mericans. Don't forget that Germany annexed DDR 20 years ago and that DDR was in much worse shape than any of PIIGS. Alo Angela Merkl along with many people in charge, grew up in DDR.
Confusion 15y ago
If you think this is about 'teaching a few Greeks a lesson', then you really don't understand the severity and complexity of the current situation. The Greeks are a symptom that can't be dealt with by being nice to them, because then they won't change a damned thing. Why would they, if the others want to keep them in the Euro so much they can get away with anything they want? And worse, by not being severe with them, the other countries will think similarly and cater to their population instead of the population of the Eurozone as a whole. That's just how the incentives are, so they are forced to impose strong counter-incentives.

wavephorm 15y ago

The more I read and hear about the debt problems of the Eurozone, I wonder how France and Germany ever got duped into joining in the first place.

jvehent 15y ago
They didn't join anything. They created it to extend their markets with a common currency. The others joined in.
- kleiba 15y ago
  Well, it wasn't Germany and France alone who created the Euro zone...
  - nakkiel 15y ago
    It was. France and Germany have historically been the driving political forces behind the European bodies. This is why now there is a leadership crisis in Europe: those two countries are still filling a leadership gap and thus criticized by other countries for taking decisions.
    - ticks 15y ago
      It has been quite the eye opener to watch France and Germany drive the proceedings. I was quite supportive of the EU and the Euro, but now I'm glad we (the UK) stayed out of the Euro. It would appear that this crisis is being used to move power away from the "weaker" countries.
      - nakkiel 15y ago
        As you are from the UK, I will warn you. Every news you read from a British source should be cross-checked with another source (just so you have another take on it). Don't get me wrong, I have no animosity toward the UK or anything like this. I also find BBC's reporting to be of very high quality and I watch it daily. However there is total unfairness regarding the Europe thing at the BBC. Basically I'd sum their coverage as "See what's going on? We told you so!". That said, I disagree with you regarding the "stay out of the Euro". I now think that it is sad that the UK didn't get more involved in the Europe. The UK is probably the only country that could have weighed enough to get France and Germany to actually implement another management. Europe is victim of the "small team" problem. It's a small team so it's ok if the two biggest guys manage it hand in hand because everybody's just ok with that and nobody can really challenge them. Problem arise with tougher times like we experience. You guys should have really pushed us :) My opinion: we needed you to kick us and tell us it's not ok to just take the lead; it needs to be formalized AND democratic.

puredemo 15y ago

What countries are running surpluses?

waitwhat 15y ago
http://www.economist.com/blogs/dailychart/2011/05/europes_economies http://www.economist.com/blogs/dailychart/2011/05/europes_ec... > Debt > Budget Balance Sweden and Estonia
- waitwhat 15y ago
  I should note that Sweden has its own (floating) currency, making Estonia the only Euro-zone country running a surplus.
- fauigerzigerk 15y ago
  Italy is running a primary budget surplus, meaning it is reducing debt.
  - justincormack 15y ago
    No, the primary surplus is before interest payments. After interest payments it runs a deficit, so it is still borrowing to pay the interest bill, so debt is increasing.
    - fauigerzigerk 15y ago
      That's true in absolute numbers. But if a country is able to run a primary surplus over the long run, it means that the growth of its economy and its tax revenues is keeping up with the additional nominal debt. So the debt grows in absolute numbers but not relative to GDP. That's why the primary balance is generally considered a good measure for debt sustainability. Still, you are right that they may not be reducing debt, but at least they are keeping it stable.
      - mseebach 15y ago

mrb 15y ago

This diagram is 1.5 years old (May 2010). How much has changed since then?

nakkiel 15y ago
I can't find that article anymore but a few days ago I read an article showing that since August, French banks have largely reduced their exposure to other European countries' debt. By largely I'm speaking of figures ranging from 40% to 80%, depending on the Bank. What was more disturbing in that article is that it clearly shows that the activity of those banks is still very sane and that they made profits and all indicators are green even through the last few months. In other words, besides market speculation, nothing justifies the 20% drop of the CAC40 or 50% drop for certain groups (Carrefour is now worth less on the market than their assets). I'll reach back when I find the article. Edit: I believe it's this article, but it's now behind a paywall: http://lecrible.lesechos.fr/?Assurance-vie-transparence-et
- hvass 15y ago
  Here is a related link from the WSJ, essentially saying that French banks are reducing their exposure to Greek debt (and to other governments as well): http://blogs.wsj.com/source/2011/11/08/french-banks-pleasing-the-markets-at-last/ http://blogs.wsj.com/source/2011/11/08/french-banks-pleasing...
- enqk 15y ago
  "Carrefous is now worth less on the market than their assets" Maybe equity value drop is predicting a drop in asset value?
  - nakkiel 15y ago
    I'd say that their assets in China only are worth more than this. Carrefour has literally withdrawn from Thailand (they had a large and well placed fleet of shops and a good reputation) to invest everything in China. They had long been in China before that but that's just to give an idea of how seriously they take the Chinese market. Their strategy is to be fully implemented throughout the country when the middle class fully emerges. If such a middle class ever emerges, they will be terribly wealthy.

perlgeek 15y ago

It would be interesting to see the per-capita debt additionally to the total debt.

Someone 15y ago
per-capita debt as a fraction of per-capita income or possessions would be more interesting; a millionnaire or someone with a solid 200K income with a 100k mortgage is not a problem.

Tichy 15y ago

Sadly most edges seem to be rather one-way - otherwise it might have been a fun exercise to cancel everything out.

forrestthewoods 15y ago
Given that it's not entirely one-way why can't it be partially cancelled out? Sure it wouldn't go the distance but why is that step not made?
- waitwhat 15y ago
  The hand-wavey text in the top-left explains that "Banks and governments in these five shaky economies owe each other many billions of euros." So while it does look like "Greece owes Ireland $8.5bn" is at least partially cancelled out by "Ireland owes Greece $0.8bn", I would expect that these statements roughly translate to "The Greek government owes various Irish banks $8.5bn" and "The Irish government owes various Greek banks $0.8bn", which unfortunately don't cancel each other out.
- ianpurton 15y ago
  The debts are probably government bonds with different maturities and interest payments being held by different banks. I'm not sure where the information from this diagram comes from because I didn't think a banks exposure to different countries was public knowledge.
  - justincormack 15y ago
    That data was released as part of the European bank stability tests. You can get the spreadsheets here http://www.eba.europa.eu/EU-wide-stress-testing/2011/2011-EU-wide-stress-test-results.aspx http://www.eba.europa.eu/EU-wide-stress-testing/2011/2011-EU... Historically it was not available.
Tuna-Fish 15y ago
The various governments largely don't act as lenders. When they say "Portugal owes Spain $86 Billion", they actually mean "The government of Portugal owes various Spanish institutions and individuals, mainly banks and retirement funds, a total of $86 Billion". None of it cancels out.

mikemoka 15y ago

The diagram, as others have said, is old, here is probably the most updated version: http://www.thepeakeffect.com/2011/09/europes-web-of-debt-update.html http://www.thepeakeffect.com/2011/09/europes-web-of-debt-upd... no mention of sources though.

sixtofour 15y ago
I believe the graphic you link comes from here: http://www.eudebtwriteoff.com/ http://www.eudebtwriteoff.com/ That is a site put up by one of the authors of a report exploring the idea that the PIIGS should write off their mutual net balance debt: if I owe you $10, and you owe me $2, then we strike the $2, and I owe you $8 while you owe me $0, reducing loss by friction. That report (pdf) is linked from the site. I found that site by searching for the filename of the image (EURBEF.png), and looking for a post or article that uses it and cites its source. This is one such post: http://www.zerohedge.com/news/european-sovereign-debt-cant-we-all-just-net-along http://www.zerohedge.com/news/european-sovereign-debt-cant-w...
- deleted 15y ago
  [deleted]
- mrb 15y ago
  This is shocking. A simple, error-proof, accounting move with zero side effects... What are we waiting to do this?
  - sixtofour 15y ago
    Some people make money from friction.
    - mikemoka 15y ago
      It's way more complex than that. The debt includes private and public institutions, and countries from outside Europe.

donaldc 15y ago

For me, the most shocking thing in the web is that Ireland and its banks owe $867 billion. That's approximately $188,000 for every man, woman, and child in Ireland.

justincormack 15y ago
This was largely shifted from the banks to the Irish government, as the bank bailout was Euro 100,000 per head. All the fallout from a property boom.
dhughes 15y ago
Ireland has (or had?) a pretty good economy too with well paying aerospace and other tech industry jobs.
- sudonim 15y ago
  I think what you're seeing now is the cost of that "good economy".
- barry-cotter 15y ago
  Not that many although the tech industry doesn't seem to be going anywhere thank fate. Still, it's not like those jobs are even theoretically available to more than maybe a quarter of the population. One thing that surprised me when I read it[0] was the huge difference in profitability of domestic and multinational firms in Ireland per employee in the same sector. Twice as productive, twice. [0]http://www.gillmacmillan.ie/economics/economics/economy-of-ireland-11th-edition http://www.gillmacmillan.ie/economics/economics/economy-of-i...
  - barrkel 15y ago
    This is largely a product of booking European profits through Irish subsidiaries. (Irishman myself, FWIW.)
    - dhughes 15y ago

johnbatch 15y ago

The source is from Bank for International Settlements, which has a nice interactive web app for doing your own analysis. http://stats.bis.org/ http://stats.bis.org/ The data in this table is almost a year and a half old.