Chart of the Day: Euro Zone Government Debt

The two Wall Street Journal charts below give one a sense of the relative size of the government debt markets in the euro zone as well as the size of those markets compared to each country’s GDP. Estonia has both the smallest government debt market and the lowest debt level as a percentage of GDP. Due to its size, Germany has the largest government debt market in the euro zone. However, Germany’s debt to GDP at 82% is also well over the Maastricht treaty limit of 60% as none of the large euro zone nations fulfil the Maastricht government debt criteria. Greece still has the highest debt to GDP ratio.

(click image to enlarge)

Source: The Wall Street Journal

  1. David_Lazarus says

    Germany’s figure also does not include bailing out the German banks once the domino effect of euro exits starts. The exit of Greece is totally manageable but it opens up the prospect of the rest of the PIIGS exiting, and that would wipe out all the other sovereigns if they make the mistake of bailing out the banks. One of the big exits would wipe out French banks and that would impact those nations banks who avoided the PIIGS. 

    1. Edward Harrison says

      The myth, David, is that the Germans are fiscally responsible and everyone else isn’t. That’s supposed to be why their debt service costs are so low. The reality is that Germany has a lot of problems with debt too and you highlighted some. I think the euro could manage Greece too plus Portugal. Spain and Italy are where the problems are.

      1. David_Lazarus says

        Yes and possibly Ireland as well, but that could wipe out core nations banks before then. France is very vulnerable to the Mediterranean sovereigns. Greece and Portugal could wipe out the French banks before Spain and Italy are counted. The leverage of the core banks magnifies the impact on them. Though what might not be considered is that Greek banks dominated investment into Bulgaria and Cyprus. These do not appear to be on anyones radar and a collapse of Greek banks could cause a collapse of two other sovereigns. My biggest concern is that there will be more bank bailouts and that will maintain the debt burden across Europe. That will mean Europe will be sluggish for the next two decades. 

  2. Barry Oblivion says

    Many thanks for charts. Germany are the most fiscally responsible major economy; or if you like the least worse.

    1. Edward Harrison says

      Bill Gross calls it the “cleanest dirty shirt”

Comments are closed.

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