Published February 14, 2012
| 24/7 Wall St.
The Greek government on Sunday agreed to drastic austerity measures in the hopes of securing a 130 billion euro bailout from international creditors — the second bailout in two years. The measures include dramatic cuts in pay, pensions and government services.
The creditors, which include the European Commission, the International Monetary Fund and the European Central Bank, demanded that by Wednesday Greece show clear evidence of how it will make 325 million euro of the 3.3 billion euro cuts. Greece, which has among the worst debt in the world, faces default as early as March if it does not get the bailout.
In addition to Greece, several European Union member countries now face overwhelming government debt. On Monday, Moody’s downgraded six countries, including Italy, Portugal and Spain. Other countries, like Germany and Japan, also have burdensome debts, but unlike Greece or other troubled EU members, their debt problems are not unmanageable. 24/7 Wall St. has identified the countries that have the highest debt-to-GDP ratios.
Many of the countries with the highest debt levels relative to their gross domestic products have been hit hardest by the global recession. Greece, Ireland and Portugal all have unemployment rates above 14%. Wealth in these countries is extremely low. In the case of Portugal, GDP per capita in 2010 was just $25,575, lower than every country in the developed world except Slovakia. The combination of extremely high debt, high liabilities and sinking national productivity has resulted in credit downgrades to below investment grade, or junk, bond status. Moody’s rates Ireland “Ba2,” Greece “Ca,” and just downgraded Portugal to “Ba3.”
The increasingly dire situations of several of these nations have forced their governments to enact desperate measures or face financial and economic ruin. Greece is not the only country to recently pass and implement austerity measures. In November 2011, Portugal passed a new austerity budget, which raised taxes on the population and cut the wages of all government employees. In Italy, the retirement age has been raised, and levees on pensioners have gone up as well.
Not all of the countries with extremely high debt relative to their GDPs are doing poorly. Government debt of Germany and Japan is high, but these countries can afford it. Their high debt-to-GDP ratios are balanced by relatively strong economies and wealthy populations. Germany has the highest GDP in Europe and the fourth highest in the world. While Japan’s economy was derailed by the earthquake and resulting nuclear tragedy, it remains the third-largest economy by GDP.
Though countries like Germany, France, UK, the U.S. and Japan continue to have relatively stable economies despite their massive debt, this may not always be the case. Last year, Standard & Poor’s downgraded both France and the U.S. from perfect AAA ratings. Yesterday, Moody’s gave France and the UK negative outlooks.
While many of these economies have started to recover from the recession, they continue to accrue debt. In some cases, even the world’s wealthiest economies have been forced to pass austerity measures of their own. Many U.S. states, for example, have made substantial cuts to government workforces.
24/7 Wall St. ranked developed countries by estimated general government debt as a percentage of nominal GDP for 2011, based on data provided by Moody’s Statistical Handbook for 2011. 24/7 also reviewed nominal GDP, nominal GDP growth, GDP per capita (PPP) and sovereign credit rating from Moody’s. All of the data from the handbook is an estimate for 2011, with the exception of GDP per capita, which is for 2010. Unemployment rates are from the Organisation for Economic Co-operation and Development.
These are the 10 countries deepest in debt.
10. United Kingdom
> Debt as a pct. of GDP: 80.9%
> General government debt: $1.99 trillion
> GDP per capita (PPP): $35,860
> Nominal GDP: $2.46 trillion
> Unemployment rate: 8.4%
> Credit rating: Aaa
Although the UK has one of the largest debt-to-GDP ratios among developed nations, it has managed to keep its economy relatively stable. The UK is not part of the eurozone and has its own independent central bank. The UK’s independence has helped protect it from being engulfed in the European debt crisis. Government bond yields have remained low. The country also has retained its Aaa credit rating, reflecting its secure financial standing.
> Debt as a pct. of GDP: 81.8%
> General government debt: $2.79 trillion
> GDP per capita (PPP): $37,591
> Nominal GDP: $3.56 trillion
> Unemployment rate: 5.5%
> Credit rating: Aaa
As the largest economy and financial stronghold of the EU, Germany has the most interest in maintaining debt stability for itself and the entire eurozone. In 2010, when Greece was on the verge of defaulting on its debt, the IMF and EU were forced to implement a 45 billion euro bailout package. A good portion of the bill was footed by Germany. The country has a perfect credit rating and an unemployment rate of just 5.5%, one of the lowest in Europe. Despite its relatively strong economy, Germany will have one of the largest debt-to-GDP ratios among developed nations of 81.8%, according to Moody’s projections.
> Debt as a pct. of GDP: 85.4%
> General government debt: $2.26 trillion
> GDP per capita (PPP): $33,820
> Nominal GDP: $2.76 trillion
> Unemployment rate: 9.9%
> Credit rating: Aaa
France is the third-biggest economy in the EU, with a GDP of $2.76 trillion, just shy of the UK’s $2.46 trillion. In January, after being long-considered one of the more economically stable countries, Standard & Poor’s downgraded French sovereign debt from a perfect AAA to AA+. This came at the same time eight other euro nations, including Spain, Portugal and Italy, were also downgraded. S&P’s action represented a serious blow to the government, which had been claiming its economy as stable as the UK’s. Moody’s still rates the country at Aaa, the highest rating, but changed the country’s outlook to negative on Monday.
7. United States
> Debt as a pct. of GDP: 85.5%
> General government debt: $12.8 trillion
> GDP per capita (PPP): $47,184
> Nominal GDP: $15.13 trillion
> Unemployment rate: 8.3%
> Credit rating: Aaa
U.S. government debt in 2001 was estimated at 45.6% of total GDP. By 2011, after a decade of increased government spending, U.S. debt was 85.5% of GDP. In 2001, U.S. government expenditure as a percent of GDP was 33.1%. By 2010, is was 39.1%. In 2005, U.S. debt was $6.4 trillion. By 2011, U.S. debt has doubled to $12.8 trillion, according to Moody’s estimates. While Moody’s still rates the U.S. at a perfect Aaa, last August Standard & Poor’s downgraded the country from AAA to AA+.
> Debt as a pct. of GDP: 97.2%
> General government debt: $479 billion
> GDP per capita (PPP): $37,448
> Nominal GDP: $514 billion
> Unemployment rate: 7.2%
> Credit rating: Aa1
Belgium’s public debt-to-GDP ratio peaked in 1993 at about 135%, but was subsequently reduced to about 84% by 2007. In just four years, the ratio has risen to nearly 95%. In December 2011, Moody’s downgraded Belgium’s local and foreign currency government bonds from Aa1 to Aa3. In its explanation of the downgrade, the rating agency cited “the growing risk to economic growth created by the need for tax hikes or spending cuts.” In January of this year, the country was forced to make about $1.3 billion in spending cuts, according to The Financial Times, to avoid failing “to meet new European Union fiscal rules designed to prevent a repeat of the eurozone debt crisis.”