Sunday, March 4, 2012

The Debt Web

Here is a very useful webpage at the BBC website which explains quite clearly the financial interdependence between euro-zone countries in terms of debt. It gives a good picture of the tangled debt web - who owes to whom?

Well, I found it surprising to see France and Spain as medium risk countries and Italy as a high risk country due to its exposure to the Greek debt.  In all cases, France and Germany are the principal creditors, with the exception of Ireland, which owes a larger share of its debt to the UK. The figures for Ireland are indeed very high but as for the other countries they do not include just public sector debt but all debt owed overseas,  including that owed by the government, monetary authorities, banks and companies.

The conclusion is that Europe is overwhelmed by public and private debt in a variable proportion. So why just focus on public debt, which in some cases, has increased as a result of excessive risks and moral hazard caused by private banks and companies? 

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