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Eurozone is at risk of a debt crisis

Published : Friday, 10 April, 2020 at 4:38 PM  Count : 297

Eurozone is at risk of a debt crisis

Eurozone is at risk of a debt crisis

Economic and financial forecasts sank in uncertainty, now more than ever. Nevertheless, the outlook for the Euro-region sovereign credit rating should be discouraged. The push in the euro area is now becoming a serious threat to public health.

During the previous crisis, the euro-area general government debt ratio increased from 65 percent of GDP in 2007 to 90 percent in 2022. But after years of belt-tightening and budget consolidation, that's about a quarter of that fiscal. Crisis-stimulated debt consolidation increased unabated at the end of 2019, when the ratio was 84 percent.

For example, let's take a "10/10" situation, where the nominal GDP in the euro area this year has decreased by 10 percentage points compared to 2019 (as nominal GDP has increased by 3 percent in 2019, which coincides with that) in 2021. Percentage shrinkage) and the budget deficit worsens by ten percentage points (since the deficit of 20 was 0.9 percent of GDP, it is 2020 Decimals correspond to a one percent deficit).

In this scenario, Euro-area public debt will rise from 5 percent of GDP this year to 5 percent.

This will take some pretty quick growth to expose the debt build-up. But after the previous financial crisis, it took five years for the euro zone to return to the nominal GDP level of 20 and reduce the peak budget deficit (25 and 28) by two-thirds.

Estimating the relative pace of economic and financial reforms since 2021, the euro-area public debt will continue to grow at 12 percent of GDP by 2022. In this situation, will the increase in the debt burden of the people be accepted during the previous crisis? More worryingly, it will do so with the most vulnerable member states starting from a significantly weaker position.

Of course, the euro area is not a country. It has no debt of its own; Member States do. Unfortunately, countries with the highest debt-to-debt ratios will see their debt stack rise faster. For example, Italy's 10/10 percent GDP this year will rise to 167 percent in 2022, with France's debt-to-debt ratio at 135 percent, Portugal 144 percent and Spain 129 percent.

Germany's debt will remain close to 5 percent and the Netherlands' 5 percent, but the expansion of debt debt in the euro area will continue its inappropriate growth. And even this imitation does not appear to be more affected by health emergencies than at least the high-rated, low-debt sovereignty sovereigns, such as Spain and Italy.

Sovereign states of low-rated high debt, and especially Italy, move to debt levels, which raises questions about the sustainability of public financing. However, because of their lack of flexibility in exchange rates and monetary policy, these national governments have less debt-carrying capacity than those capable of fully deploying these combination levers, such as the United Kingdom or Japan.

So far the rating agencies have been conspicuously silent. Moody's and S&P have not announced a change in a single vision for European Union sovereignty.

A change in outlook is not a downgrade, but it is only an indication that the downgrade is likely to become more frequent in the next two years. Agencies are increasingly contradictory, rather than reducing the ratings of corporate executives, where political and public backlash against agencies is generally more muted.-Internet


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