2010-05-31

Busting the Myth of European Debt

Everyone's concerned about European debt levels. People have also pointed out that the US is in a better position than Europe. The data do not bear that out:

Gross US debt was 86.4% of GDP in 2009
Gross EU16 debt was 78.7% of GDP in 2009
Gross EU27 debt was 73.6% of GDP in 2009

US Budget deficit was 10.3% in 2009
EU16 budget deficit was 6.3% in 2009
EU27 budget deficit was 6.8% in 2009

In short, yes be worried about Greece, Ireland, Spain and others. But both the Eurozone (EU16) and the European Union as a whole (EU27) is in a more fiscally sound position than the United States. This should be a major determining factor behind risk analyses of European government bonds in comparison to US Treasury bonds.

Data information:
  • US GDP in 2009 was $14.2563 Trillion. Source: Fred GDPA.txt
  • Gross government debt in 2009 was $12.31134967751203 Trillion. Source: Treasury Direct debt for 2009-12-31.
  • Government debt as percentage of GDP is 86.4%
  • US Budget Deficit in 2009 was $1.471295 Trillion. Source: MTS0110.txt. Data collated into spreadsheet here.
  • US Budget Deficit in 2009 was 10.3% of GDP.
  • EU16 and EU27 data available in summary table from Eurostat. Source: Provision of deficit and debt data for 2009 - first notification.
  • Eurostat Provision of deficit and debt data for 2009 states on page 2, footnote 1: "Government debt is the consolidated gross debt of the whole general government sector outstanding at the end of the year (at nominal value).", which corresponds more or less to gross debt levels recorded at US Treasury Direct website. (ie: apples are being compared to apples)

2 comments:

Jaap said...

dear OSO,

the most perceived problem with the EU government debt is not the height, but more the expectation if this can be paid off. especially the Mediterranean countries are coping with a stable or decling population, compared to a constant expansion of the population in the US.
i.e.: the Greek debt will never be paid off, and the US-debt will most likely be outgrown by the GDP.

One Salient Oversight said...

the US-debt will most likely be outgrown by the GDP

Pre 1980 your view would be right. Since 1980, however, GDP in the US has slowed considerably. Moreover, debt levels in the US have grown in relation to GDP.

Of course the US could just begin growing at a faster rate again... but then so could Greece.

And population is hardly a good measure for determining growth. US birthrates are almost below replacement level.