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Every headline I read tonight said something like, “The Greek Bailout Flop” or “Stocks Tumble on Greek Bailout”. Today’s global market sell off was not about Greece. Today’s sell off was not about Spain, Portugal, Ireland or Italy. Today’s sell off was about the future success or failure of the Euro Zone, and even more importantly the impact on the rest of the world.
Let’s look at a few simple facts. Total Greek debt is 113 % of GDP, and the annual deficit is roughly 12.7% of GDP. They are in imminent threat of default with notes due on May 19th. How does Greece stack up against other countries?
| | Total Debt % of GDP |
Annual Deficit % of GDP |
|---|
| Spain | 50% | 9% |
| Italy | 115% | 10% |
| Ireland | 64% | 13% |
| Portugal | 77% | 9.3% |
| UK | 68% | 11% |
| Germany | 65% | 3.2% |
| France | 70% | 8.2% |
| Greece | 113% | 12.7% |
When you look at this table it is pretty easy to see that the EU idea of 3% maximum annual deficit and 60% debt to GDP has effectively been thrown out the window. If you need to down grade Spain, why not France, Ireland, Italy and the UK also.
But this is still not what the sell off was about. What would you think of a country that had a total debt of 98% of GDP, a deficit that was 11% and rising? These numbers look very close to Italy and Greece and far worse than Spain.
Well the country with total debt of 98% and a deficit of 11% and rising is US. That is what today’s sell off was all about? And could some one tell me again, why we are still flocking to US Treasuries as a “flight to safety”? Oh, that’s right, we have one thing that the other countries mentioned above don’t have. That would be a printing press and a Chairman that knows how to use it.
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