Saturday, 14 May 2011

A look at government debt for the three bailed-out EU countries

I have computed a coupe of ratios concerning government debt and would like to share them with you. I've only done that for Greece, Ireland and Portugal but I will do something similar for countries that defaulted/restructured on their government debt in the not so distant past. Provided that I find relevant data for the said countries of course.

Here's the first ratio, General Government Consolidated Gross Debt / General Government Total Revenue.

source: AMECO, own calculations

This ratio gives us an idea of how many years goverment revenues would have been adequate to pay off the entirety of one country's government debt. As the graph makes it more than obvious, in this count Greece is in much worse shape than the other two bailed-out EU countries.

The next ratio is Interest Payments / General Government Total Revenues.

source: AMECO, own calculations

Well, the chart shows that currently Greece is not in the worst position that it has found itself in the past 20 years or so. Before the EMU accession, our country's interest payments on its government debt (more specifically on 1994) accounted for 35% of the general government total revenues, compared with the "measly" 15% that they amount to now. 

This confirms what I have maintained for some time now and have mentioned in past posts, namely that hadn't Greece been allowed to be part of the EMU, maybe (and this is a purely personal and speculative assessment) we would have defaulted on our debt back then. But with the markets' perception that EMU access would somehow make our government debt a safer bet, coupon rates declined and the said ratio readings declined with them. 

Again, in this count as well Greece is in a much deeper hole than the two other countries pictured here.

Finally, let's have a look at the implicit interest rate for General Government Debt of the three concerned countries.

source: AMECO

This indicator gives away a different picture from the other two since all three countries pay an almost identical implicit interest rate on their government debt. Just another manifestation that markets after the EUR introduction and until a couple of years ago regarded all EMU countries as being of almost identical creditworthiness...

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