UPDATE: Europe is paying for its past excesses: European interest payments as % of GDP.

With news out today of a weak German bond auction and troubles with the Dexia bailout, I thought it time to update my table of European interest payments as % of GDP. But first, the news:

  • Germany auctioned 6 billion euros of 10-year government bonds, but attracted just 3.889 billion euros of bids, a bid-to-cover ratio of just 0.65. Six of the last eight bond auctions have seen bids below supply. In these cases, the Bundesbank has bought the remaining debt. German yields are rising as a result. Germany’s 2-year yield is up 0.06% to 0.44% and 10-year yield is up 0.13% to 2.12%.
  • Belgian yields are soaring to new highs on reports that the bailout of Dexia was failing. Belgium’s two-year yield rose 0.69% to 4.98% and 10-year yield increased 0.40% to 5.47%. In France, also a partner to the Dexia bailout, the 2-year yield rose 0.14% to 1.86% and the 10-year yield jumped 0.15% to 3.68%.
  • No news other than the above is pushing up rates across most of Europe. Greece’s 1-year yield skyrocketed 38.6% to 306.7%. The 2-year rate jumped 4.6% to 117.9% and the 10-year year yield rose 0.18% to 29.04%. All are record highs. Over in Italy, 2-year yields rose 0.17% to 7.15% and 10-year yields increased 0.15% to 6.97%.

So now, let’s see an updated table of where Europe stands in its ability to pay the interest on its debts.

 

2-year interest rate

Debt-to-GDP

Interest payment %age of GDP

Change in Interest payment

Greece

117.88%

144.9%

170.8%

+14.4%

Portugal

14.62%

83.2%

12.2%

-3.1%

Italy

7.11%

118.1%

8.4%

-0.1%

Ireland

9.96%

64.8%

6.5%

+0.5%

Belgium

4.94%

96.6%

4.8%

+1.9%

Spain

5.82%

63.4%

3.7%

+0.8%

France

1.88%

83.5%

1.6%

+0.5%

Germany

0.45%

78.8%

0.4%

+0.1%

Great Britain

0.47%

62.6%

0.3%

———

United States

0.26%

99.7%

0.3%

———

As you can see on the above table, only Portugal had a significant decrease in interest payments going forward. In contrast, Greece, Ireland, Belgium, Spain, and France all say significant increases. Whereas previously, only four countries had interest going forward exceeding 3 percent of GDP, six nations now face that situation.

Clearly, as anybody watching the stock market decline here knows, the European debt crisis is getting worse and the European leaders have yet to find a solution. Unfortunately, with the budget mess in Washington and debt-to-GDP ratio of about 100%, higher than most of those “risky” European nations, the United States will soon be facing the same problem.

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