Tuesday, June 21, 2011

Backgrounder: Greece debt crisis part of a bigger economic crisis among European nations

The news from and about Greece is being reported to American media consumers in fits and starts: riots in the streets a week ago, government instability this week. Yet Americans don't seem to ever get the whole picture and it is apparent often in the comments seen on stories that do appear online.
For many there is little sympathy for reports that Greece might just default on its debt. Yet the conversation turns 180 degrees for some when reports talk about the austerity measures being considered in order to get Greece's financial house in order.

A few days ago the NYY produced a very nice interactive map that illustrated the debt levels found in Europe, as well as some historical data. But if debt were the only issue involved here this story would never make it out of the Business section. The missing element here is unemployment.

Here is a look at debt as a percentage of GDP, and also unemployment levels for each of the nations often grouped together under the unfortunate acronym PIGS - Portugal, Ireland (and sometimes Italy) Greece and Spain:

Nation Debt as % of GDP Unemployment Rate
Sources: Eurostat, CIA data, IMF

One can see the situation Greece finds itself in, but by looking at the current unemployment rate one can also see that further austerity measures might provoke much anxiety internally.

Greek Prime Minister George Papandreou today tried to address concerns about new austerity measures with a statement:

"I am well aware of the hardships many people in Greece are experiencing today as the country takes these difficult but long overdue decisions," the English language paper Athens News reported. "As I have said before: if there were an easier route out of the crisis, we would have taken it. But there is not. The only way for Greece to return to growth and create jobs in a sustainable way is to restore competitiveness and put its public finances on a solid footing. That is the route Greece has embarked upon, with the European Union's full support and solidarity.

Also, while Spain's debt level is not a major concern when compared to other European nations, its high unemployment rate is clearly a major influence on domestic politics.

(For the sake of comparison, the debt as a percent of GDP for the U.S. is either 59% (CIA/Eurostat) or 93% (IMF) depending on the source. Japan is seen as the country in the worse shape, with its debt standing at 225% of GDP as of last year.)