This year, the budget deficit will rise to 12.7 per cent of gross domestic product – and this assumes there are no further accounting tricks to be uncovered. Deutsche Bank calculated in a recent research note that the country's public debt-to-GDP ratio is headed for 135 per cent. Gross external debt – private and public sector debt owed to foreign creditors – was 149.2 per cent at the end of last year. The real exchange rate has gone up by 17 per cent since 2006, which means the country is losing competitiveness at an incredible rate. Had Greece not been in the eurozone, it would be heading straight for default.
The government's 2010 draft budget foresees a deficit reduction to about 9.1 per cent of GDP. But the number is misleading. The lion's share of the total deficit reduction effort is earmarked to come from tax measures, and most of those from the fight against tax evasion. Tax evasion is always the item first on the list of desperate governments.
Here is the full article.
The U.S. isn’t far behind, with a 2009 federal budget deficit of ~12% of GDP and a public debt-to-GDP ratio that is headed for ~100%.
I had asked why professor Krugman had not compared US to Greece but he limited himself to Belgium and Italy…messy countries according to him. What about Greece?
further complicating things, Greece still receives alot of remittences from abroad. So Greek internal production (GDP) is an imperfect measurement, as grecian “cashflow” exceeds those boundaries. And what is remitted is seldom declared
How does Greece’s gross external debt ratio to GDP compare to the USA?
more to the point, a lot depends on whether the debt is denominated in a currency owned by the country and on whether the debt is owed to the country’s own residents/citizens. if it’s in the country’s own currency, the currency value will ebb and flow with the country’s long term productivity; if not, it will move with some other country’s economy. bad news if you run into problems and have to repay in a different currency. if it’s owed to residents/citizens, interest payments will be paid back into the country’s economy. the old “we owe it to ourselves” straw.
As I thought about an article about why some nations are seen as uncreditworthy at deficit and debt levels far less than the US, I realized the creditworthiness of a nation is based primarily on
1) the willingness of a nation to tax itself and
2) the ability to tax itself.
Based on the US record on taxation over its history, the US is the most trusted of all nations, but I’d say Germany, Britain, China, to name a few, have similar records making them trustworthy.
The reason Greece is less trustworthy than the US in 1945 when debt was of the same scale is the clear willingness of the US to tax itself, and the record of collecting taxes.
The debt today for the US is lower, but many sense the US is unwilling to tax itself, not for any rational reason, but purely out of greed.
And one can, I believe, extend the unwillingness to pay taxes to the unwillingness to invest, and in an expectation of a free lunch. If one adds the inability to collect taxes, then one can infer a culture of corruption where people take what they want based on some for of power.
The reason one should worry about the US is the rather striking unwillingness of the nation’s leadership in 2001 to tax, and the current opposition to taxes when taxes are the lowest in decades.
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