PIGS Deficit-to-GDP Revaled

Posted in CFA by qmarks on March 16, 2010

Nowadays, the Greece debt is a big concern for the markets. According to Bloomberg, credit default swaps indicate a 22 percent chance Greece will default within five years, up from 16 percent a year ago. I was curious about that probability and whether their deficit to GDP level was at a default point. Also I wanted to compare them to Portugal, Italy, Spain and average of first 15 European Members. Last, I asked if Greece defaults, then who is next? (it’s Spain)

I begin looking at the Eurostat the European Union Official Statistics Database and not surprisingly found that the latest data point was 2008. Here is the Deficit-to-GDP Chart. A sudden drop in Spain needs a little deeper analysis.

Treaty of Maastricht statest that :

With regard to the soundness of budgetary positions, the fiscal limits for any member are:

  • the deficit in general government finances to 3% of GDP in any year, and
  • the public debt-to-GDP ratio to 60%

Again, according to Government Finance Statistics in Eurostat Statistical Books, the public debt to GDP ratio for Greece is now over 100% and its deficit to GDP was 7.7% in 2008.

At the report one line took my interest (line 15), Social Benefits which raised from 35 Billion Euro in 2006 to 45 Billion Euro in 2008. My next concern is what includes those Social Benefits. It is not the wages, recorded in compensation of employees nor the salaries for retired people, recorded in Capital Transfers Payable.

(click to enlarge)

So What?

I am not sure if the new European Monetary Fund will assist Greece, but I think if Greece fails, the next will be Spain. In order to prevent a crisis in Europe Monsieur Trichet  should keep interest rate a while. Bottom line, I would short Euro! Maybe that is what Soros Fund is doing now.


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