One country in every seven is an EU member

Global News

PROGRESSIVEECONOMY
TRADE FACT OF THE WEEK | November 9, 2011

One country in every seven is an EU member.

THE NUMBERS:

                                   World            European Union             EU Share
Population               7 billion                 0.5 billion                        7%
Countries                    195                          27                            14%
R&D                    $1.19 trillion             $295 billion                    25%
GDP                      $70 trillion               $18 trillion                     26%
Imports                $18.2 trillion             $6.7 trillion*                   37%
FDI                      $1.32 trillion            $0.41 trillion                    31%

* Or $2.7 trillion of $14 trillion excluding trade within the European Union.

WHAT THEY MEAN:

To paraphrase a saying attributed, perhaps wrongly**, to notorious Bolshevik Leon Trotsky: you may not be interested in Greek bond yields, but they are interested in you.

The Greek government is thought to owe 340 billion euros, or about a half-trillion dollars. This figure, about 100 percent of GDP, is comparable to the debts of some other big countries, but much harder to repay since it is owed by a government which (a) has an exceptionally large structural gap between taxes and public services and pensions, along with uncertain financial statistics, and (b) now has to pay 27.75 percent interest on a ten-year bond, as opposed to 2.25 percent for Germany and 2.125 percent for the United States. As Jacob Kirkegaard of the Peterson Institute for International Economics in Washington – not the well-known Kierkegaard who wrote Fear and Trembling, but with a similar message – observes:

Sovereign bonds have by definition been deemed “risk free.” Consequently, when Greek government debt must be restructured, it will impose upon the euro area banks credit losses for which they have previously not set aside capital, and given the scale of ownership of such debt among domestic Greek banks, it will require that these be recapitalized with money from international donors. The same dynamic is inevitable across essentially all euro area members, as the domestic banking system will face ruinous capital losses if national sovereign debt is restructured, due to the high domestic government debt ownership.

“All euro members” are a group of 17 countries – Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain – but in practical terms, the owners of most of this debt appear to be French and German, along with Greek, banks. (A table from the BBC finds known bank lending to Greek government at $3 billion for the U.K., $22.6 billion for Germany, and $15 billion for France; adding debt from Greek private businesses, the totals come to $18 billion for the UK, $57 billion for Germany, and $72 billion for France.) This makes a crisis in Greek debt also a crisis for the financial systems of much larger economies – enough perhaps to raise fears of a 2008-like financial event, and still more so in the event of ‘contagion’ affecting the other troubled if somewhat less-indebted Mediterranean countries.

FURTHER READING:

European governments along with the European Central Bank and the IMF attempted a 110-billion euro rescue for Greece in May of 2010, and a second package of 159 billion euros last July. Their third try is 178 billion euros plus a 50-percent debt writeoff. The European Central Bank: http://www.ecb.int/home/html/index.en.html

Some relevant figures for the United States include: EU members buy $170 billion of the US’ $530 billion in services exports, and $170 billion of $900 billion in manufactured exports, or about four cents in each dollar of total U.S. manufacturing shipments. EU businesses provided $180 billion of last year’s $215 billion in foreign direct investment in the United States, and likewise about half of American overseas investment is in the European Union. The U.S. Mission to the EU: http://useu.usmission.gov/

Question-and-answers on Greek debt and risk from the BBC: http://www.bbc.co.uk/news/business-13798000

Gloomy Congressional testimony from PIIE’s Jacob Funk Kirkegaard: http://www.iie.com/publications/testimony/kirkegaard20111027.pdf

** And last –

Trotsky purportedly said that “you may not be interested in war, but war is interested in you.” Searchers for the source think he actually, in the context of an intra-communist doctrinal dispute with a lapsed disciple, said something considerably more boring: “Mr [James] Burnham does not recognize the dialectic, but the dialectic recognizes Burnham – that is, extends its sway over him.”

Trade Fact editors have unsuccessfully tried to find out how this dull bit of in-group sniping was transmuted into an admired aphorism on war and neutralism, whether Trotsky made the war comment separately, or whether somebody else said it and lost the credit. Tell us if you know.

ProgressiveEconomy is a project of the GlobalWorks Foundation, a non-profit 501(c)(3) joined in the campaign to eliminate global poverty and based in Washington DC.
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Source: GlobalWorks Foundation, Nov. 9, 2011
To view the original article, click here.

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