Giips country; because of the German “homework” economic policy, are in a situation like Tantalus torture.
The period 2007-2012 goes from the explosion of the financial crisis to the drama of the sovereign debt of giips (a more polite word than piigs) countries. The cumulative Gdp change and the ratio public debt/Gdp increase for giips and continental countries are:
Gdp %D deb-ratio D
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Greece -18,50 63,7
Ireland -5,64 92,7
Italy -6,77 23,2
Portugal -6,12 50,8
Spain -4,20 54,4
Belgium +0,44 15,7
France +0,22 25,8
Germany +3,49 17,6
Netherland +0,30 20,2
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The picture is clear: all giips countries had a strong contraction (paramount the Greek one) and greater increases in the debt ratio, while continental countries recovered the 2007 level of Gdp (with a net increment for Germany), and had a relative small debt increase. The vicious circle: fiscal contraction, economic slowdown, increase in the debt ratio, new fiscal contraction, and so on, is clearly visible. Of course, each country had its specific problem, like the banks rescue of Ireland; Spain had a small debt ratio in 2007 (36,3), so that Zapatero quickly decided to use a counter cyclical fiscal policy, so that the Spanish Gdp contraction has been the lowest among giips countries.
Looking at the data, it appears that France and Italy represents an exception, in the sense that Italy had a debt ratio increase lower than the France one, in spite of the strong economic recession. For a better understanding, we can decompose the debt-ratio increase into three components: the first one is the difference between i, the cost od the debt ( weighted rates of interest on bonds) and g, the rate of growth of Gdp, the so called snowball effect. The second one is the primary surplus (as a per cent of Gdp), that is the difference between public revenues and expenditures (a part interests on debt), while the third is made by all the financial operations “under the line”, like loans to Efsf/Esm funds.
_________ Components of the debt-ratio increase___________
i-g primary surplus residual
France +7,6 +8,6 9,5
Italy +22,9 -7,8 8,3
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The two countries had similar residuals, but the big difference was that Italian primary surplus would have reduced the debt-ratio, supposing a zero difference i-g. But the snowball effect has been very strong, generating almost all the debt-ratio increase. France had a small snowball effect, and a primary deficit, which gave a support to the Gdp, reducing the snowball effect. It is interesting to note that Germany had a limited primary surplus (-2,3) but, from 2010, a rate of growth greater than the cost of debt (i-g: -5,6), so that the debt-ratio increase was due entirely to the residual (19,6).
It is hard to be a giips country; because of the German “homework” economic policy, a country is in a situation like Tantalus torture. You have to produce a primary surplus, which lowers the rate of growth; the snowball increases, so that you have to increase the primary surplus and this again and again. Moreover as a giips country you are not completely reliable.
News from Bundesbank say that in Germany the 2012 rate of growth is 0,7 instead than 1, and 2013 forecast is 0,4 instead than 1,6 (June estimates). The wind of recession reached Berlin, while a feeling of schadenfreude spreads all over giips countries.