Rich and Poor in Europe

Throughout the euro crisis the discussion has been around the rich and poor countries. However, that division is not quite honest. The reality of rich an poor in Europe is regional. The magazine Spiegel has posted a great map showing the income (based on GDP per capita) for the different regions of Europe.

Deadbeat Germany - Historically Yes!

The German online magazine Spiegel has a great article that should humble Germany's demands for Greek, Irish and Portuguese austerity. It makes the case that in the twentieth century, Germany was a major defaulter and depended on other countries absorbing its losses - i.e. taking "haircuts". It is a good historical perspective that shows that Germany does not have a financially righteous past - but is really a reformed sinner.

Greek Problem - Good Charts

One of the big questions in the world economy right now is how long can the Europe crisis go on and when will it break. The German magazine Spiegel has the following charts showing the worsening condition for Greece - it does not look good.

The first chart shows clearly how debt growth is outpacing GDP growth (which is negative).

























Clearly Greece is going down (unless the Germans want to permanently support them). One of the big unknown is the losses a Greek (and Irish and Portuguese) restructuring will do to European banks - will the debt crisis cause a European Lehman crisis. The balance sheet of the ECB is looking shaky, as shown in the chart below.

Euro Bond Graphics

Throughout the whole eurozone crisis, there has been the talk of setting up euro bonds. The idea is that instead of each euro country issuing bonds based on their individual credit, they could borrow based on the credit of the entire euro zone. This would allow the smaller poorer countries to benefit from Germany's lower rates. Since it is now clear, after Greece and Ireland, that the eurozone will bail out countries at risk of default, this idea is seeming more credible than it did a few months ago. The German magazine Spiegel posted this good graphic describing how this would work:

Spreading Euro Crisis

Poor Europe. No matter what it does, the crisis is spreading. The German news magazine Spiegal has been covering the crisis and has another good graphic of the countries in trouble. Here it is:

Irish Crisis - Good Graphs

The German on-line magazine Spiegel has a series of good charts showing the problems in Ireland and comparing the Irish situation to the rest of the euro-zone. Here is the interesting part - clearly Ireland is in trouble with high unemployment and a very high deficit (30% of GDP), but its overall debt to GDP is low (lower than Germany's). So, why is this a sudden crisis? Why is there a sudden jump in Irish interest rates?
Look at the charts:

Rewards of Austerity

Fiscal austerity is the big focus now. The basic idea is that the cost of rising national debts are too much and that nations, in the heart of a global recession, need to cut government spending. The big examples of this have been in Europe - namely the PIIGS (Portugal, Italy, Ireland, Greece and Spain). Last spring, when the focus was Greece, Ireland was held up as a model of fiscal austerity and prudence since it had cut its government spending in the face of recession. Of course the result of such a choice is to further weaken the economy - which is the case with Ireland. However, the reward for such behavior has been higher (not lower) interest rates. Check out the chart below from the German magazine Spiegel. Clearly, the bond markets don't care about austerity. They care about the ability to repay debt - which increases as an economy gets stronger.

Bleak view from abroad

The German magazine Spiegel online has a bleak view of the current American economy. While bleak views are not anything new and are hardly unique these days, the article and images are good because it gives an insight into how Europeans are viewing the current crisis.