Advertisements

3 Eurozone Countries With Debt-to-Income Ratio Over 300%

Comments Off on 3 Eurozone Countries With Debt-to-Income Ratio Over 300%

Forget the usual Debt-to-GDP ratio that is thrown about when discussing a countries ability to pay. A more realistic ratio is between its debt and its income since debt is paid from a governments income. When you consider this comparison, then 3 countries in the eurozone have  a ratio greater than 300%. Worse still is the US with a debt-to-income of 304% in 2012.

Ireland, Greece and Portugal are labouring under debt-to-income ratios of more than 300%, according to figures that expose the indebtedness of eurozone governments in relation to their government revenues.

The measure, intended to show governments’ abilities to pay debts, shows Ireland’s total debt in 2012 was €192bn (£163.1bn), or 340% of the government’s income. Ireland came a narrow second in the table to fellow bail-out recipient Greece, which has amassed an even worse debt-to-revenue total of 351%. Portugal – which has also received aid from the troika of the International Monetary Fund, the European commission and the European Central Bank – came third with a debt-to-revenue ratio of 302%, while Britain was sixth last year on the list of 27 European Union member states, with a debt-to-revenue ratio of 212%, according to calculations based on European commission figures.

 Debt figures are usually calculated as a ratio of a country’s national income and expressed as a proportion of GDP. But national income figures reflect activity across the whole economy, in both the public and private sectors. governments must pay debts from tax receipts and other government income, not the income for the economy as a whole. Some analysts argue a government’s debt-to-revenue ratio provides a clearer picture of its ability to fund annual debt payments once interest rates are taken into account.

The US is in even worse shape than Greece. Its $16tn (£10tn) debt is the equivalent of 105% of GDP, but more than 560% of government revenues. Washington’s debt payments are cheap after a plunge in the interest it pays on government bonds, but with revenues of only 14% of GDP compared with about 40% across much of the EU, its ability to pay is weakened.

Ireland, which is often commended for its recovery from the banking crash, has seen a sharp rise in its debt-to-revenue ratio in the last four years. In 2009 the ratio was 187%. A year later it had jumped to 262% before reaching 340% in 2012. However, the country appears to be in better shape when debt-to-GDP figures are used. It ranks fourth, with a 117.6% ratio, after Greece, Italy and Portugal.

Greece’s performance, by contrast, has improved. It has pushed through a huge clampdown on government spending and has seen its ratio fall from 402% in 2011 to 351% in 2012.

Some of Europe‘s strongest economies have jumped up the league table of indebted EU nations when the debt-to-revenue measure is used. Germany has a ratio of 181%, Malta’s is 178%, while France has a ratio of 174%, all higher than countries that are often cited as troubled and at risk of default such as Slovenia (120%) and Hungary (168%).

The healthiest economies according to the debt-to-revenue measure are the Nordic nations, where Sweden enjoys a 75% ratio, Denmark a 82% ratio and Finland a 99% ratio in 2012.

In the aftermath of the 2009 banking crash, the US investment bank Morgan Stanley argued that debt-to-government-revenue ratios should be included in any discussion of a possible sovereign debt default.

Analyst Arnaud Marès, who has since left the firm, said in August 2010: “Whatever the size of a government’s liabilities, what matters ultimately is how they compare to the resources available to service them. One benefit of sovereignty is that governments can unilaterally increase their income by raising taxes, but they will only ever be able to acquire in this way a fraction of GDP.

“Debt/GDP therefore provides a flattering image of government finances. A better approach is to scale debt against actual government revenues. An even better approach would be to scale debt against the maximum level of revenues that governments can realistically obtain from using their tax-raising power to the full.

This is a function of the people’s tolerance for taxation and government interference. Seen from this angle, the US federal debt no longer compares quite so favourably with that of European governments.”

In 2010, US debt to revenue was 365%.

Source: The Guardian

Advertisements

Portugeese Emirgrating To Africa

Comments Off on Portugeese Emirgrating To Africa

Things are so bad in Portugal these days that many are emigrating to Angola a former colony. As many as 100,000 are now making their living in the resource rich West African nation which boasts a growth rate of between 8 – 10% this year. Many are making their way to other ex colonies such as Brazil and Mozambique.

Portugal is enduring its worst recession since the 1970s, with austerity measures imposed, unemployment at a record 15% and the economy predicted to shrink by 3% this year. So deep is the malaise that one government minister offered some provocative advice: “If people are unemployed they should leave their comfort zone and look beyond our borders.”

This is what they are doing in such former colonies as Angola, Brazil and Mozambique, whose economies hold up an inverted mirror to their own. Oil-rich Angola enjoyed growth averaging 15% between 2002 and 2008 and, although it then lost momentum, it is still posting figures that the eurozone would envy, with growth expected to recover to between 8% and 10% this year.

Angola is attractive to the Portuguese because of business and cultural links – not least a shared language – forged before it gained independence in 1975. A long, devastating civil war followed, but a decade of peace has transformed the desirability of taking part in sub-Saharan Africa’s third biggest economy.

The number of Portuguese living here has soared from 21,000 in 2003 to more than 100,000 last year, according to official figures which are likely to be a conservative estimate. Some 38% of foreign companies registered in Angola are Portuguese, media reports say, still well ahead of Chinese firms at 18.8%.

….

Portuguese people are scenting opportunities in Angola’s thriving construction industry: the skyline of Luanda, the capital, is a symphony of cranes, new skyscrapers and the still incomplete dome of a parliament building by Portuguese company Teixeira Duarte. They are also finding work in banking and IT.

“There’s no humiliation in coming here,” Ribeiro added. “The Angolan government only accepts people with a decent CV looking for a proper job. It’s mostly professionals in the higher bracket. The language still matters. Communication is very important if you hold a high position and need to communicate with workers on a day to day basis. And of course there is a cultural understanding. In 500 years we left an imprint of everything, even a taste for wine, and the hostility towards us is long gone.”

As Europe lurches from financial crisis to crisis, Africa’s economic “lions” offer a lifeline.

Source: Guardian

Portugal Bails Out 3 Banks

1 Comment

I wasn’t expecting that, but Portugal has just bailed out 3 banks when all the focus has been on Spain. They are pumping in nearly €7 billion but as usual, thats only the start of it. We will get the drip, drip feed for here.

The past two weeks it was Spain, now it is back to Portugal, which overnight announced it is bailing out three banks to the tune of €6.65 billion. If at this point who is bailing out whom is becoming a confusing blur – fear not: that is the whole point. From AAP: “Portugal will inject more than 6.65 billion euros ($A8.49 billion) into private banks BCP and BPI, and the state-owned CGD to meet criteria established by the European Banking Authority. “In all, the state will inject more than 6.65 billion euros in these banks,” though five billion euros is to come from an envelope worth 12 billion included in a financial rescue plan drawn up in May 2011, the finance ministry said. Portugal last year became the third eurozone country after Greece and Ireland to be bailed out, receiving an EU-IMF package worth up to 78 billion euros in return for a commitment to reform its economy and impose austerity measures.” And surely that will be it, and Portugal will be fixed. Just like Spain was fixed, until someone actually did some math and found a hole up to €350 billion out of left field. Funny how those big undercapitalization holes just sublimate into existence, usually moments before client money is vaporized.

 

Source: ZeroHedge

Greece Default Has Damaged Market Confidence In Euro

Comments Off on Greece Default Has Damaged Market Confidence In Euro

Although Greece’s default restructuring of its bonds has temporarily relieved the pressure and paved the way for a new rescue package, it has also damaged the markets confidence in investing in PIIG bonds even further. On the one hand the euro authorities have broken some many promises that its hard to believe anything they say. Norway’s sovereign wealth fund has decided on investing in the PIIGS because after all the ECB was exempt from taking a hit during Greece’s restructuring.

The fund, under Norway’s finance ministry, voted against the Greek debt deal on the grounds that European institutions were exempted from losses and given “special” treatment. “It’s very important to create trust in the markets. To create trust you have to stick to the rules,” said director Yngve Slyngstad.

What happens if the same deal was extended to Portugal. Pimco’s Mohamed El-Erian is not so confident in private investors doing well out of a Portuguese restructuring  and said

Portugal will need a second rescue as the original package of €78bn (£65bn) falls short, setting off a political storm over EU rescue costs.

“Unfortunately, that is how it will be. It will make the financial markets nervous because they are worried about a participation of the private sector,” he told Der Spiegel over the weekend.

To put it in context

If the Greek haircut formula is ultimately extended to Portugal, private creditors can expect to lose everything. The EU and the International Monetary Fund already own most of the debt, reducing everybody else to cannon fodder status. Mr El-Erian said EU leaders are deluding themselves if they think they have solved Greece’s problems. “The Greek package is going to fall apart quickly. Bridges built to go nowhere can collapse at any time,” he said.

The IMF said in its latest report that Greece remains “accident prone” and may need further help and more debt haircuts if the economy “fails to respond rapidly enough to reforms”.

It warned that a “disorderly euro exit would be unavoidable” if the EU cuts off support. Such an outcome would threaten the IMF itself with unprecedented losses.

Source: Telegraph (Ambrose Evans-Pritchard)

Greece Defaults First – Who Is Next?

Comments Off on Greece Defaults First – Who Is Next?

Call it anything you want, but Greece’s defaulting restructuring of its debts has officially being called a credit event which will trigger credit-default swap contracts by the International Swaps and Derivatives Association. Thats a default by any other name. Question is, what happens next. Although ISDA says only €3.2 billion has been triggered in credit-default swap contracts, the Huffington Post has  this to say;

If you remove all hedges and offsetting swaps, there’s about $70 billion in default-insurance exposure to Greece out there, which is a little bit bigger pill for the banking system to swallow. Is it possible that some banks won’t be able to pay on their default policies? We’ll find out.

Greeece’s restructuring is not so straight forward now. But what of the collective action clauses that Greece invoked. Remember that these were used retrospectively. Ambrose Evans-Pritchard wrote

The Greek parliament’s retroactive law last month to insert collective action clauses (CACs) into its bonds to coerce creditor hold-outs has added a fresh twist. These CAC’s are likely to be activated over coming days. Use of retroactive laws to change contracts is anathema in credit markets.

Many now believe that Portugal is next in line.

Right now, the combination of all public and private debt in Portugal comes to a grand total of 360 percent of GDP.

In Greece, the combined total of all public and private debt is about 100 percentage points less than that.

So yes, Portugal is heading for a world of hurt.  The following is more about Portugal from the recent Telegraph article mentioned above….

Citigroup expects the economy to contract by 5.7pc this year, warning that bondholders may face a 50pc haircut by the end of the year. Portugal’s €78bn loan package from the EU-IMF Troika is already large enough to crowd out private creditors, reducing them to ever more junior status.

The truth is that the European financial system is a house of cards that could come crashing down at any time.

German economist Hans-Werner Sinn is even convinced that the European Central Bank itself could collapse.

After the major restructuring if its debts, how do you think Greece is fairing?

The Greek economy has been in recession for five years in a row and it continues to shrink at a frightening pace.  Greek GDP was 7.5 percent smaller during the 4th quarter of 2011 than it was during the 4th quarter of 2010.

Unemployment in Greece also continues to get worse.

The average unemployment rate in Greece in 2010 was 12.5 percent.  During 2011, the average unemployment rate was 17.3 percent, and in December the unemployment rate in Greece was 21.0 percent.

Young people are getting hit the hardest.  The youth unemployment rate in Greece is up to an all-time record of 51.1 percent.

The suicide rate in Greece is also at an all-time record high.

Source: theeconomiccollapseblog.com

%d bloggers like this: