If PIGS fly, others may crash… Deficits & interest
by Benjamin on May 6, 2010
Any debtor will tell you that as long as you can cover your interest payments, you don’t have to worry about the debt, and the PIGS aren’t the problem. While we watch the EU/IMF bail-out package for Greece, economists look for the next weak link in Europe. The official candidates are the other PIGS (Portugal, Ireland and Spain), but I’m not sure that makes sense. Browsing the Eurostat government finance stats, it becomes clear that while Greece had the second highest deficit as a % of GDP (36.9%) and Government Income (13.6%), it spends the most of all European countries on its interest payments as a percentage of its income (13.5%). That’s as much as the deficit alone! This is significant.
If you can’t make your payments, you will get downgraded, and in turn you will have to pay more. The high risk countries, in terms of their ability to pay interest, are not the usual suspects. The scary candidates are Hungary and Italy, with 9.9% and 10.2% of their government income dedicated to interest payments! Portugal, Ireland, UK and Spain have the highest deficits in Europe as a percentage of Government income, but the UK has no problem servicing its interest (it is 4.8% of government income). The others are close to the EU average (6%) with interest costing 6.9% (Por), 6.2% (Ire), 5.2% (Spa) of government income. Malta and Belgium look like worse bets with 7.8% and 7.9%…
The safe bets, who have the lowest deficits in Europe, Debt-GDP ratios below 40%, and interest payments taking up no more than 5% of government income are: Bulgaria, Denmark, Estonia, Luxembourg, Finland and Sweden. So the Baltics and Scandinavians are seemingly fine. That leaves the risky countries as Portugal, Ireland, Greece, Spain, Hungary, Italy, and T… The child in me wishes there was a European country starting with T… That aside, I think the last two are probably as risky as Greece, with the other three less cause for concern. You heard it here first ;-) [And the data is here if you want to check it out]
Tags: Debt, Default, Deficit, Greece, Hungary, Ireland, Italy, PIGS, Portugal, Spain
