What Internal Devaluation in Greece Looks Like

As you can see wages in greece have declined by more than 20 percent nominally from 2010 up until 2014.

Has Deleveraging in EU only just Begun?

Only in Ireland private debt has gone down notably. In Greece and Italy only the growth stopped, no deleveraging can be seen yet. For a fast recovery in all of these countries, private debt needs to decrease more. 

Washington Post

Projected Government Spending For Developed Countries in 2013

Denmark has the highest projected government spending as a percentage of GDP, with 58.4 percent. France and Austria also have notably high expentiture percentages, even above Noric countries Finland and Sweden. Greece doesn't have that high government spending after all with 48.3 it is around the average. Australia has the lowest government spending for the selected countries.

History of EU/Euro Zone (1929-2013)

Large overview of the history of the EU and the implementation of the Euro. From the first suggestion for a common European currency in 1929 until Croatia joining the EU in the beginning of 2013.

EZ Banking Sector As a Percentage of GDP (2000-2013)

This great chart by Thomson Reuters shows the Euro Zone bankings sectors of their respective countries GDP. With Luxembourg leading with a big gap, Ireland and Cyprus follow. Slovenia and Greece have notably small banking sectors.


Click on the picture for a bigger version.

Cyprus Bailout Pictured

After many days of uncertainty finally a deal has been made between the Troika and Cyprus. The island was required to raise 5.8 billion euro's (bail-in), when Europe would contribute 10 billion (bailout) to save the banks in Cyprus hit by huge losses incurred on Greek assets. In this deal Laiki bank was agreed to shut down, which means that Senior bondholders and savers over 100.000 (also for Bank of Cyprus deposit holders) are seized by the government.

Reuters

PIIGS Current Account 2011-2012

Société Générale made this chart on the current account balance as a percentage of GDP for Greece, Italy, Spain, Portugal and Ireland. In October 2012 Ireland, Spain and Greece had a positive balance on the current account, meaning that the value of their exports was higher than the value of imports. Especially for Greece this is a tremendous improvement since the huge negative numbers in the beginning of 2011. Both Italy and Portugal also temporarily had a positive balance in the beginning of 2012.

The question is whether these improved current account balance mainly reflect better export fundamentals or lower imports due to lack of economic growth.

Societe Generale

Euro Zone Unemployment Spreads Q4 2012

When people talk about Euro Zone spreads they normally refer to the difference between the government borrowing interest rate of a particular Euro Zone country in comparison to the interest rate for the German government. German government bonds are taken as the benchmark since lending to the German government is basically seen as risk free. When lending to other countries, especially the southern Euro Zone countries, a risk premium is added on top of the German interest rate to reflect the higher default rate of those countries.

Besides this financial interpretation of spreads, a different form of spreads can be constructed to show the differences in the real economy between the Euro Zone countries: unemployment spreads. Unemployment spreads for the Euro Zone are defined as the difference between the unemployment rate in a particular Euro Zone country and the unemployment rate in Germany. As can be expected Euro Zone countries most hit by the Euro crisis have the highest unemployment spreads, with Greece and Spain even above 20 percent. This is a lot higher than the Euro Area average of 5.8 percent and the EU average of 5,3 percent. Austria, the Netherlands and Finland on the other hand have unemployment rates comparable to that of Germany.

World 2013 GDP Forecast: Fastest Growers and Contracters

The Economist constructed this overview of those countries in the world that are forecasted to have the highest GDP growth rate as well as those that have the most negative rate. As you can see the developing countries are forecasted to grow the most. From economic theory this can be explained by the fact that these countries still have a lot growth potential, because their economies are still small. Another reason why countries may see high growth is because they are located near China, as China is growing fast the country invests a lot in neighboring countries. Mongolia and Macau (a small country similar to Hong Kong also inside China) are examples. Another reason why a country may grow fast is that it is recovering from a disaster like a natural disaster or a war, of which Libya is an example. 

On the other hand developed countries are growing a lot less and consequently all the forecasted fastest contracting countries are developed countries. Notice that all the fastest contracting countries, besides Syria and Iran, are located in Europe. 

Due to a request by the Economist this graph has been removed. 

View the graph here

2012 Euro Area Bond Yields

Compared to the beginning of the year, especially Greek and Portuguese, bond yields have come down quite a lot during the year. As is noted in the graph the Greek debt restructuring for Greek debt and the verbal commitment by the ECB president Draghi in July dampened the exit and breakup risk and hence brought down sovereign debt yields.

Where will the bond yields go in 2013?

The Economist

EU Countries 2012 Government Debt Projections

Reuters constructed this graph, with data from the European Commission, which shows the projected government debt ratio's for the selected EU countries. As you cansee for most countries the debt to gdp ratio is well above it's 10 year average.

As you might have expected Greece has the highest debt to gdp ratio. On the other hand, Sweden's debt is even lower than it's 10 year average. Euro Area avearge government debt is expected to be at 95 percent.

Reuters

2013 Greek Budget: More Austerity

The Greek Government will again implement significant budget cuts in 2013, which it agreed on in November with the Troika. Pensions and state salaries are the main places where the cuts will take place. The reduction in the deficit consists for about 4/5th of budget cuts and 1/5 of tax increases. This total planned tax increases and budget cuts in 2013 are 9.4 billion euro's.

The reduced budget deficit will still increase the government debt however.

Note: the Greek parliament has approved the budget in November.

Sovereign Credit Rating Update: Greece Upgraded

An update in the Sovereign Credit Rating chart from Reuters, which shows the credit ratings for the Western economies from the three major rating institutions. The difference with the last chart is that Greece has been upgraded by S&P from 'Selective default' to 'Very high risk'.

Reuters

Greek Debt Composition 2012

One reason the Northern European countries bailout out Greece was because banks, for example German en French banks, heavily invested in Greek government debt. Since then the European Commission (EFSF) and the ECB have bought quite a lot of debt from the banks. This means that the bond holders of Greek debt shifted from only private parties to mostly public holders now.

This means that when there would be a second round of writedowns on Greek debt the European tax payer will have to pay as well.

Credit Ratings, U.S., Japan and Euro Zone (Oct 2012)

Thompson Reuters created this graph with the long term sovereign debt ratings for the Western countries. For the three major credit rating institutions the ratings are listed.

Thompson Reuters

Government Debt in the EU Countries (second quarter 2012)

This great graph from Reuters shows per EU country the government debt it had at the end of the second quarter, as a percentage of GDP.

Since the crisis Portugal, Ireland have been accumulating debt at a high rate, while seeing their economy shrink significantly. This is shows in the government-debt-to-GDP measure, for which they are in respectively  the third and the fourth place in having the highest government debt in the EU.

Estonia and Bulgaria have the lowest government debt in the EU.

IMF Euro Zone Inflation Forecasts to 2017 (WEO Fall 2012)

Greek inflation is slowing down tremendously, from more than 4 percent in 2010 to expected deflation in 2013 and 2014. The other countries are expected to have their inflation rates to be relatively close to the EU average. Lower in Spain and Italy and higher in Germany.

Bondvigilants

Some Convergence Actually Took Place In The Euro Zone

This graph, from a presentation of the ceo of the Dutch Central Bank, shows that some convergence actually  took place since the implementation of the Euro. The graph shows the difference in the growth of the listed countries with the growth of Germany. Especially Ireland, Greece and Spain grew a lot faster than Germany. In 2007 that difference was even 40 percent for Ireland, cumulatively. Portugal and Italy were not able to generate more growth than Germany.

DNB

One of the causes for this convergence may be that Ireland, Spain and Greece saw their real interest rate decline significantly. This graph shows that the extra growth was actually partly financed with borrowed money:

DNB

Also this was accompanied by inflation:

DNB

IMF Euro Zone GDP Forecasts (WEO Fall 2012)

This graph shows the latest IMF forecasts for the GDP growth rates for a number of selected countries. For most countries the next few years won't be easy, but will see GDP growth rates get out of negative territory gradually. Greece is even expected to grow by more than three percent from 2016.

Bondvigilants

IMF Euro Zone Unemployment Rate Forecasts (WEO Fall 2012)

This graph shows the unemployment rates the IMF has projected for several Euro Zone countries. Note that the institute expects the high Greek unemployment to go down faster than the high unemployment in Spain.

Bondvigiliants