Over here in Europe, the big news in addition to the British Election is the continuing saga of the Greek Debt Crisis. The latest update involves a massive 110 billion Euro rescue package from the EU and the IMF, which may or may not stem worries about Greek default.
One question that always comes up in these types of situations is why not just let the country in question default? The answer, of course, is the dreaded contagion. If Greece defaults, will Portugal and Spain be next? What will happen to the rest of the Eurozone countries? But another way of thinking about contagion involves thinking about exactly who loses money if Greece defaults on its debt obligations. And in this respect, the following figure that appeared in the NY Times over the weekend is especially illustrative, and, in a way, frightening:
So when France and Germany make sure that Greece can pay its debt, they are also rescuing, well, France and Germany. Also makes it clear exactly how contagion could work in practice.
[Hat tip to Athanassios Roussias.]
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So the real question is, were they trying to make a pentagram out of this graphic, or is that just a bonus feature?
The diagram is incorrect. It’s immediately obvious that Ireland couldn’t possible owe the amount shown considering its population is only 4m people.
@Jeremy: Not an expert on this, but according to CNBC Ireland has the world’s highest external debt as % of GDP; see “here”:http://www.cnbc.com/id/30308959?slide=21. They’ve got gross external debt listed at $2.32 trillion, or 1,312 percent of GDP! Not sure on the date here, though.
The debt figures for Ireland can’t be right. I suspect the problem is that debts of foreign banks based at the Irish Financial Sevices Centre have been included, which distorts the picture. The correct figure would be closer to $400bn.
See here for discussion of this issue:
http://www.irisheconomy.ie/index.php/2009/02/19/measuring-the-liabilities-of-the-irish-banking-sector/
According to the CIA World Fact Book, Ireland has external obligations of $448,032 per capita.
http://en.wikipedia.org/wiki/List_of_countries_by_external_debt
I am beginning to wonder if the free flow of capital is really such a good thing if it produces these outcomes.
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