Jul 2, 2015

Europe - The debt bubble ready to burst?

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The World debt now weighs 199 000 billion, or nearly 300% of GDP of the planet.

With Greece, it is all the debt bubble that bursts into the open

She climbs, it climbs, the world debt. All sectors, it rose from 87,000 billion in late 2000 to 142 000 billion in late 2007 eventually reaching 199 000 2 billion e  quarter 2014, 286% of global GDP (50 points from the 4 th  Quarter 2000 ).

Its origin has also evolved over time. In 2014, 29% of the debt comes from the States, which is 6 percentage points higher than the end of 2007.

Conversely, the share of financial sector in the global debt declined over the period (-3 points), 23% mid -2014.

Companies appear as 2 e contributor to global debt, with 28% in 2014. Households them weigh for 20% of the overall debt (-3 points compared with 2007). In late 2000, most of the debt (30%) came from companies.

The boom of public debt in Europe

European countries are not unrelated to the rise in the share of states in the global debt. Between late 2007 and late 2014, the government debt of countries in the euro area 19 * percentage of GDP jumped ... 21 points, to 72.4%.

A light phase was initiated decreased since 2 e  quarter 2014 (-1 point) but the public debt ratio remains well above its pre-crisis.

* In alphabetical order: Austria, Belgium , Bulgaria, Croatia, Cyprus, Denmark, Estonia, Finland, France, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Czech Republic, Romania, United Kingdom, Slovakia, Slovenia, Sweden.

A public debt ratio of 92% on average in the euro area

Unsurprisingly, Greece tops the list of countries in the euro area 19 * at the height of public debt. End 2014, the Greek government debt represents 177% of GDP. Followed by Italy (132%) and Portugal (130%).

France ranks only 5 places behind the leading trio, with a debt ratio of 95% (the rate reached 97.5% in first quarter 2015).

Note that the consulting firm McKinsey strategy anticipates an increase the public debt / GDP ratios in most European countries over the next five years, with the exception of Germany and Ireland, among others.

In Ireland, the expected decline in the ratio originates in the forecast GDP growth. The latter should be supported by business investment and exports.

* Data for Luxembourg are not available.

The deleveraging started in some EU countries

In 2015, all countries of the euro zone do not see their debt continue to rise. A deleveraging was recently initiated in Germany, Portugal and, more frank, Ireland.

On the other side of the Rhine, the general government debt as a percentage of GDP fell by 4.6 points since late 2012 . Or not much next to -15.5% observed in Ireland since mid-2013. With 2.7 points, ever since 2 e  quarter 2013, Portugal is almost pale.

What attribute these positive results? The low level of interest rates, among others, which allows countries to borrow at favorable rates today to pay off the debt they incurred yesterday.

Elsewhere in Europe, low rates mask the damage

Not the start of a deleveraging in France, but limited breakage, thanks, among other things, to lower interest rates at which the country borrows to pay its debts. Between 2 e  quarter 2008 and 1 st  quarter of 2015, 10-year OAT was down 4.3 points, falling to 0.5%.

Meanwhile, the debt of French government, he climbed 28.5 points. An increase could have been more consistent with high borrowing rates, given the evolution of operating expenses tricolor administrations: + 17% over 7 years to 399 billion euros in 2014.

The danger of rising rates

Bad news for European countries relying on low borrowing rates to limit the rise in their debt: with the Greek crisis, investor concerns reappear and therefore the rates rise. That of the 10-year OAT has climbed 0.9 points from April 2015 to 1.3% in late June. A Greek fiasco will worsen this rise.

437 years to pay off the public debt of the euro zone

Besides the public debt to GDP ratio, the debt capacity appears as a relevant indicator of the bearable or not a debt ratio. Expressed in years, it is here obtained by dividing the general government debt in the primary balance (sometimes redundant, sometimes in deficit).

Verdict? Given the amount of the accumulated public debt in the euro zone in 2014 (9 293 billion) and the primary surplus in the same year (21 billion) by the various countries in the region would require 437 years to repay its debt. In 2007 he had to do 29.

The indebtedness of European business stabilized at a high level

Between late 2007 and the summer of 2014, corporate debt, excluding the financial sector, increased by 47% worldwide to 56 000 billion dollars, according to figures from McKinsey.

During the period, loans to European companies grew by 7%. Note however that they fall from the 3 th  quarter of 2012 (-2%) to 9,234 billion euros at end 2014. A level they had not reached since the 4 th  quarter of 2008.

3816 billion debt of European companies due soon

By the end of 2019, European companies will face the maturity of 3,816 billion of debt, of which 1 692 000 000 000 for the non-financial sector, a figure the rating agency Standard & Poor's. End of 2015, the bill amounted to 902 billion dollars.

European households indebted to the tune of 121% of their disposable income

Companies and states are not the only ones succumbing to the lure of debt. Households are not left behind. Those of the Netherlands, Ireland and Portugal top the list of the most indebted citizens. At first, the debt ratio amounted to 282% ....

That's more than twice the average for the 14 countries of the euro area for which data is available. Note that the deleveraging started in Portugal, where the rate was 156% of net disposable household income in 2012.

European households reduce their debt

Good news, households in the euro area have started to deleverage since 2010. Their debt represents 121% of their net disposable income in 2013 against 124% three years earlier, a decrease of 3 points. 

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