Eurozone: three countries have debt-to-income ratios of more than 300%
Figures expose indebtedness of eurozone governments in relation to government revenues – UK is sixth with ratio of 212%
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Three eurozone countries – Ireland, Greece and Portugal – now have debt-to-income ratios of more than 300%. Photograph: Daniel Roland/AFP/Getty Images
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 Unionmember 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%.
While Europe (and the US ) sees debt to national income soar..... keep an eye on China - as economic conditions weaken , it also appears that problems in the banking system are emerging ( rumored interbank defaults of mid -size banks / Everbright Bank failure to repay a 6 billion yuan loan on time / overnight and 7 day interest rates spiking higher in yield ) ....... something has to give !
http://www.zerohedge.com/news/2013-06-09/bank-china-close-responding-goldbug-prayers-friday-not-yet
Bank Of China Close To Responding To Goldbug Prayers On Friday... But Not Yet
As we already reported yesterday, Chinese trade data for May came out about as abysmally as we predicted it would one month ago. The reason: the Chinese Customs Administration was humiliated at the epic discrepancy in data between Chinese Hong Kong exports and Hong Kong imports from China, with the delta resulting from that other variable we discussed two weeks ago: the Chinese Copper Financing Deals which serve(d) as an interest rate arbitrage conduit. The outcome was a prompt "fix" by SAFE leading to a "normalization" in trade data, which plunged and missed almost all expectations.
It only got worse as the weekend progressed. SocGen recaps the entirety of this weekend's data dump from Beijing:
"The entire set of weekend releases from China was disappointing. Trade growth collapsed in May, revealing the actual picture of subdued external demand. CPI inflation was nowhere to be seen, while PPI deflation intensified. Activity growth largely disappointed as well on soft domestic demand and supported our call for further GDP growth deceleration in Q2. We expect policymakers to provide modestly more policy easing, including interbank liquidity injection and a stop of fast yuan appreciation."
There are some problems with the above, the most obvious one being so obvious that we should hardly mention it: if China was indeed manipulating its trade data, as is now widely accepted (not like there wa any doubt but like with the NSA, an official admission is critical to make the conspiracy theory to fact conversion complete), it is obviously manipulating everything else too. Such as inflation data.
What we do know about China is that the government is desperate to mask the unprecedented influx of hot central-bank created credit-money, which for now at least is being parked mostly in the local real estate market leading to 12 consecutive months of house prices increases.
What we also know is that the PBOC in the past has never been shy about lowering the RRR rate in times when liquidity was truly perceived to be insufficient without an offsetting opportunity cost, nor was it timid to cut rates when deflation was suddenly becoming an issue. Such as now if one believes the conventional narrative and the sellside. Of course, China is doing neither because contrary to what is being (mis)reported, inflation - not from an overheating economy but from hot money flowing courtesy of the Fed and the BOJ - has been and is still a valid concern for the Chinese Politburo.
However there is only so much lack of liquidity that the country's banking system, deprived of its lifeblood and hooked to waves of de-novo created credit money like any other developed world liquidity junkie, can take.
Which is why as we also reported citing Bloomberg, "a lack of liquidity in China’s banking system may threaten some companies’ ability to roll over debt, deteriorating banks’ non-performing loans and increasing risks of hard-landing in economy." Indeed, there was speculation on Friday that the PBOC may be forced to inject liquidity via open market operations to offset surging money-market rates.
The catalyst, as Market News reported, was that China Everbright Bank failed to repay 6b yuan ($977m) borrowed from Industrial Bank on time yesterday because of tight liquidity, leading to “chain effect” borrowing in market overnight.
There was more: "Rumours that several mid-sized banks had defaulted on interbank loans added an element of fear to an acute liquidity shortage related to a coming national holiday and a slowdown in capital inflows. The rumours couldn't be verified."
What happened was an immediate lock up in the overnight loan rate which exploded to as high as 15%. Elsewhere, 7 Day SHIBOR as shown below, has doubled from 3% to 6% in a few days as the PBOC's stubborn refusal to join in the liquidity party may soon cost the banking sector, which suddenly can't roll overnight liquidity, dearly:
All of the above we have previously touched upon. Which brings us to the topic of this article.
Goldbugs the world over may not know it, but the one catalyst they are all waiting for, is for the PBOC to throw in the towel to Bernanke's and Kuroda's liquidity tsunami and join in the global reflation effort. Alas, those hoping the Chinese central bank would do just this on Friday were disappointed. Moments ago the 21st Century Business Herald, via MNI, reported that the People's Bank of China "decided to shelve plans to inject short-term liquidity into the market late Friday because of concerns it would be sending the wrong signal in light of the government's ongoing commitment to its "prudent" monetary policy stance. Rumors hit the market mid-afternoon about an injection in the region of CNY150 bln via the PBOC's rarely-used short-term liquidity operation (SLO) tool.
That injection appeared designed to bring down money market rates, which have surged to multi-year highs due to a liquidity shortage blamed on short-term factors such as reserve payments and holiday demand but PBOC mismanagement as well. Newspaper cited research at the weekend from China International Capital Corp saying the PBOC doesn't want to ease policy with M2 above the full-year 13% target.
In other words, for now at least the PBOC refuses to openly engage in liquidity provision: a step which one taken, should bring back memories of 2011 and the great inflationary scare that sent ripples through China, leading to rumors of a Chinese Spring, open violence in major cities, and, of course, gold exploding from $1300 to $1900 in a few months.
But how much longer can it avoid the inevitable: what happens when overnight loan yields soar to 20% or 30% or more, and when the repo and SHIBOR markets lock up and no overnight unsecured wholesale funding is available?
Because when China finally does join what is already an historic liquidity tsunami, courtesy of the Fed, the BOJ, and the BOE in one month, then deflation will be the last thing the world will have to worry about. In the meantime, we welcome every chance to dollar cost average lower on physical hard assets, the same hard assets that none other than 1 billion concerned Chinese will direct their attention to when inflation makes it long overdue comeback to the world's most populous country.
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