Re examining the European debt

Probably most of you here on ATS have been following the current economic situation in Europe and are eager to see what is going to happen next.

In 2011, Greece and Italy experienced something that people never expected to happen, their democratically elected head of state were replaced by unelected technocrat (or banker). What are they doing now ? more austerity measures, more bailouts... in other words, paying a credit card with another one and at the same time, squeezing the middle class with wages and jobs cut.

I have to say that I am no economist so it's really hard to really understand what it happening. Did Greece really spend that much beyond their mean on social programs and what not, that they have no choice than to endure those harsh measures ? Well I've been trying to look at some numbers to understand the situation ... here's what I have found (the stats that I will be using are from indexmundi.com).

Greece

Public Debt
Definition of Public debt: This entry records the cumulative total of all government borrowings less repayments that are denominated in a country's home currency. Public debt should not be confused with external debt, which reflects the foreign currency liabilities of both the private and public sector and must be financed out of foreign exchange earnings.

Country 2004 2005 2006 2007 2008 2009 2010
Greece 112 106.8 104.6 89.5 97.4 113.4 144

As we can see for Greece, public debt have been over 100% of the GDP for a while now. Now let's take a look at the external debt.
Definition of Debt - external: This entry gives the total public and private debt owed to nonresidents repayable in foreign currency, goods, or services. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms.

Country 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Greece 41.9 57 63.4 63.4 65.51 67.23 75.18 301.9 86.72 504.6 552.8 532.9

I find these numbers very interesting. In one year, from 2006 to 2007, the external debt quadrupled. Noticed how the public debt as a ratio of the GDP stay relatively stable, even decrease between 2006 and 2007.

The same thing is happening for Italy and Spain and Portugal. Their numbers are even more astonishing.

As I previously stated, I am no economist and there might be a logical explanation for those numbers.

Any thoughts ?

Why do you think no one is talking about Ireland anymore? their external debt is 1300% of GDP.

Reason. Bought and paid for. Greece, Spain Portugal and Italy in still in the throes of sale.

If those 4 fail (which they will) France and Germany will follow.

reply to post by brainswippin


In those countries specifically the job crisis hit hard and fast, as a result public debt exploded as credit was used to prop households. Then magnified further by the reduction in State Revenue which in turn resulted in further borrowing.. Thus, in one year, Debt as a percentage to GDP explodes beyond what we would normally consider rational.

reply to post by JakiusFogg


Ireland kicked the can down the road a good 4 years or so.. their IMF bailout is enough to cover debt repayments beyond what global Economist predicted the total length of the Depression would be. In other words they assume when Ireland comes to a head the economy will be robust enough that revenue will pick up and cover the extra expenditures. Naturally this was a flawed logic, and once the Irish bailout is spent the economy will once again contract, and, unless they get another bailout, the country will be bankrupt.

The Greeks however keep doing this damned thing called Democracy. Where the Irish forced it down their peoples throats and told them to #$! off, the Greeks put much into votes. So the EU and IMF only give Greece small snippets of money whereas Ireland was simply paid off.