Archive

Posts Tagged ‘GDP’

Will France be the next market downgrade?

As most of you have seen in recent days, world stock markets have been manic depressive, going through ups and mostly downs due in large part to widespread worries that the US debt downgrade from S&P and the fiscal debt in countries such as Greece, Italy, and Spain will result in worse market conditions for investors.

My other sovereign’s an AAA (The Economist)

There was a market backlash against French debt and enormous market losses for French banks like Société Générale, BNP Paribas and Crédit Agricole (exposed to Greek debt and other European sovereign debt) that is making investors increasingly anxious about France’s debt. Indeed as The Economist writes:

“France’s debt stood at 82% of GDP last year, from 64% in 2007. This is one of the highest of any AAA-rated country. That, investors fear, means it could be the next target for a downgrade, especially if already anaemic economic growth falters further. The extra yield required by investors to hold French debt instead of German Bunds jumped to almost triple the average level of 2010 while the cost of insuring against a default by France reached new highs during the week.”

Moreover, as The Telegraph writes, “French banks have €410bn (£360bn) of exposure to Italy alone according to the Bank for International Settlements. The twin crises in France and Italy are now intimately linked and appear to be feeding on each other.”

How will France proceed? According to a great, in-depth Bloomberg interview (embedding not allowed) with Philippe D’Arvisenet, global chief economist at BNP Paribas SA, France initiating austerity measures is “inescapable”. They go on to discuss France’s exposure to European sovereign debt, reform plans to cut spending but keep tax rates at current levels (though with elimination of some 500 tax loopholes).

The same Telegraph article states, “French president Nicolas Sarkozy has ordered a “general mobilization” to slash France’s budget deficit in a frantic effort to safeguard the country’s AAA rating and head off a downgrade by Standard & Poor’s.”

We will see how this plays out…for now, the markets will likely continue to be manic depressive. Hang on tight!

I leave you with this passage from the Telegraph article:

“…Marchel Alexandrivich from Jefferies Fixed Income said investors are worried that the latest contagion to France could bring the eurozone’s bubbling problems to a head in a dramatic fashion.

“If France is dragged into the problem, then we will hit crisis point. They will either have to move to a full-blown eurobond — and German politicians are set against that — or face a break-up. There is a significant chance that the euro will no longer exist in its current form within twelve months,” he said.
President Sarkozy said France would include a “golden rule” in its constitution to restore fiscal probity, adding that the fiscal targets for 2011 and 2012 were “untouchable”.

The new budget measures will be introduced on August 24 and are expected to include the closure of 500 tax loopholes.

The IMF said France has the highest debt ratio of any AAA state this year at 85pc of GDP and may have to tighten further next year. Like the US, France has also built up huge pension debt and contingent liabilities.”

US states population and GDP compared to countries

As is often the case, The Economist has a very interesting feature with an interactive map that illustrates the states of the US and their population and GDP (I believe nominal here, not purchasing parity), compared to similar statistics of other countries.

For instance, the population of California (37.5 million) brings it close to Poland (38.11 million), and the GDP of Texas ($1.114 trillion) is roughly the same as that of Russia ($1.231 trillion).

How does France fare? Its GDP is estimated at around $2.5 trillion, making its economy about the size of a California-Florida combination, and its population of about 65 million translates into the combined populations of California and Texas.

For those of you interested in China, the magazine has a similar feature comparing Chinese provinces to countries (for instance, Guangdong’s GDP is similar to that of Indonesia). It also gives GDP per person and Exports stats.

For the US feature, you can click on each state for an in-depth analysis. I have pasted images below to give an idea of the feature (1st one is GDP, 2nd one is population). Enjoy.

Eurozone crisis in graphics

BBC has a fantastic guide to an otherwise discouraging subject: the debt and deficit levels in the Eurozone. As you can see, France’s national debt is at 77.6% of GDP, and its deficit is 7.5%, which makes it about the middle of the Eurozone and enough for major concern.

One of the main causes of the currency crisis in the eurozone is that virtually all countries involved have breached their own self-imposed rules.

Under the convergence criteria adopted as part of economic and monetary union, government debt must not exceed 60% of GDP at the end of the fiscal year. Likewise, the annual government deficit must not exceed 3% of GDP. However, as the maps show, only two of the 16 eurozone countries – Luxembourg and Finland – have managed to stick to both rules.

Overall, Greece is the worst offender, with debt at 115.1% of GDP and a deficit of 13.6% of GDP. But among the bigger economies, Italy’s debt is even higher than Greece’s as a percentage of GDP, while Spain’s deficit is 11.2% of GDP. If the UK were in the eurozone, it would also fall foul of the criteria, with its debt now standing at 68.1% of GDP and its deficit at 11.5% of GDP.

Categories: Economics, Europe Tags: , , , ,
%d bloggers like this: