Ah, the power of infographics. You might have seen this nifty little NYT diagram of the links between Europe’s, err, porcinely acronymous debt-laden sovereigns:
Aaah! Big! Debt! Terror! Except the picture may not be so informative as it is striking, in fact.
The independent Irish economist Ronan Lyons argues that the NYT has forgotten a rather key point. Not all debt is equal, and not all assets are equal. As Lyons notes:
…the markets are worried not about all debt. They are worried particularly about government debt, because typically there is no corresponding asset. And it turns out that there is a difference in scale between all debt and government debt – a huge difference in some cases. It turns out that, in the case of Greece and Italy, only about half of all debt is government debt. For Portugal and Spain, it’s only one fifth of all debt. In the case of Ireland, just five percent of all its debt is general government debt.
So Lyons has helpfully corrected the graphic to show the percentage of external debt in Greece, Portugal, Spain, Ireland and Italy that is actually comprised of public debt.
Which makes the picture look a bit less overwhelming. Click to enlarge:
OK, it may not be the sexiest graphic in the world, but it is important to bear in mind, as Europe’s debt crisis swings between fear of contagion and fixing fiscal fundamentals, which are supposed to be the true longer-term problem awaiting the continent. (Although it’s worth pausing to consider who would actually suffer if the Spanish private sector defaults on its massive debts).
Spain’s government set out its latest ‘fiscal cuts or death’ priorities on Monday in the wake of Europe’s €750bn eurozone rescue package, for example.
Some perspective would therefore be useful on the nature of fiscal predicaments in the eurozone, as fears over bank-held debt recede for a bit.
As Lyons goes on:
As you can see, the [NYT’s] total debt figures exaggerate the situation for all countries, in particular Spain and Ireland, which have sizeable international finance sectors. A more useful statistic would have been to look at total government debt – or better yet total government debt per citizen. This ranges from $10,000 per head in Spain to $27,500 in Greece. Or – better still – take account of how the per capita debt compares to average output. Based on these figures, the ratio of (per capita) public debt to GDP in late 2009 was about 50% in Ireland and Italy, as low as 30% in Spain and above 90% in Greece.
Ah, the power of statistics. As for Greece, finance ministry sources have informed AFP that it will request the first tranche of aid from its Eurozone and IMF rescue package on Tuesday.
Dude, where’s my bailout?, in other words.