Europe, a Union of Destabilized Countries

Greece Ireland Portugal Risk Premiums 2010/05-2011/08
Belgium France Risk Premiums 2010/05-2011/08
Risk Premiums on Sovereign Debt of Various EU Nations, May 2010-August 2011

Europe, a Union of Destabilized Countries
Among the countries that don’t need a rescue, Belgium and France are the most exposed to the weakness of Spain and Italy.
El País: Europa, una unión de países desestabilizados
Álvaro Romero reporting from Madrid August 6, 2011

According to the market, Spain is no longer the country most likely to follow in the footsteps of Greece, Ireland, and Portugal. As of yesterday, the next country in line for a rescue is thought to be Italy, whose risk premium has overtaken Spain’s for the first time in 15 minutes. This change offers no relief for Spain, but it shows investors are concerned that Italy, with its weak growth prospects and the weight of its debt (more than 120% of its GDP), might not be able to fulfill its fiscal consolidation plans.

Here are the current states of affairs for the other countries that share the dubious honor of being one of the most fragile debtors in the European Union.

Greece: The Origin of the Debt Crisis
Greece caught the spark that set off Europe’s fiscal inferno. The new government which took power in 2009 brought to light that the nation’s macroeconomic figures had been dressed up for years and said that the government was on the verge of bankruptcy. The country has been rescued twice by the EU and IMF: it will receive €219 billion, €50 billion of which will come from the private sector. Its public debt is 142% of its Gross Domestic Product.

Ireland: Dragged Down by Its Financial System
Ireland’s problem was the enormous sinkhole of its financial system, which was disproportionately large in relation to the size of the nation’s economy. It had to request an €85 billion rescue, most of it to recapitalize its banks, which owed some €70 billion. Its sovereign debt rose by 32% of its GDP in 2010 and is now 96% of GDP altogether.

Portugal: Grave Productivity Problems
It was the third country, and the most recent, to request a rescue, in its case €78 billion. On March 31, it corrected the quarterly deficit data it had originally announced from 7.3% to 8.6%. That was the final blow for investors, who lost confidence in the solvency of an unproductive economy with a sovereign debt at 93% of GDP.

Belgium: Large Debt and No Government
All the countries above were rescued on the basis that their crises could infect other countries. They’ve been contagious, nevertheless, and many analysts are speaking of a speculative chain attack. Besides the countries that have already been rescued, like Italy and Spain, the next is Belgium, which hasn’t had a government for more than a year and carries a public debt that is 97% of its GDP.

France: A Very Exposed Central Bank
The second largest economy in Europe is still far removed from the pressure the other countries are suffering, but it would be the next on the horizon. Its principal problem is that it’s the most exposed to the debts of Greece (€40 billion, 38.5% of the total) and Italy (€293.5 billion). Its own public debt is elevated as well: 81.7% of GDP.

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