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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

European Central Bank: National debt approaching danger levels across Europe

European Central Bank

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The head of the European Central Bank (ECB) said today that the overall euro area debt-to-GDP ratio could hit the dangerous 100 percent level in coming years if tough measures to reduce spending are not enacted.

This is a pretty big deal and here's the easiest way to explain why: Right now, debt makes up 48 percent of Finland's GDP, and Finland's in pretty good shape, economically. In Greece, debt makes up 125 percent of GDP, and you know what kind of mess the Greeks are in.

The ECB says that everything that's happening to Greece -- default as a nation, basically -- can happen to the remaining 15 euro area countries if steps are not taken soon.

In Europe, the same thing happened as happened here: a Great Recession followed by massive amounts of government stimulus to try to keep the ship from sinking, which has led to huge and unsustainable levels of debt.

It's just like a household: What happens when you run up such a high amount on your credit card that you can only afford to make the minimum payments? Right. It gets ugly.

The most worrisome thing to me in the report, however, was something else:

"The real GDP growth assumption which is used for each of the three baseline scenarios is based on the path for the real potential growth rate of the euro area, as underlying the baseline long-term projections in European Commission and Economic Policy Committee (2009). According to this source, real potential growth gradually declines from 2.2% in 2011 to 1.5% in 2030." (My emphasis added.)

That's a shocking prediction. It's basically saying that Europe's economy will shrink, not grow in the next 20 years. I knew that Europe had terrible economic growth demographics -- and older population, no path to citizenship for immigrants in many countries, no ability for each country to set their own monetary policy because they all use one currency -- but I didn't see the future as being that bleak.

In the U.S., growth is expected to be a modest-for-us 2.5 percent or so gain in GDP this year. But if unemployment begins to drop, U.S. GDP should start rising back toward its more-normal 5 percent clip. That's one way you work off the big debts you've incurred, and as we have incurred. But if your economy is shrinking instead of growing, well, I don't know what you do with your debt problem.

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By Frank Ahrens  |  April 14, 2010; 6:00 PM ET
 | Tags: Economic growth, Economy of the United States, European Central Bank, European Commission, Greece, Gross domestic product, Monetary policy, United States  
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Comments

Debt problems. In the old days they rioted and destroyed competition. Now it is a half conscious effort to prevent new devices from working successfully. Once momentum is gained it continues automatically like a semi-military operation. Morale is higher along with value, so you can take weeks or months off and growth fuels more growth. Fuel up the jet and take a nice long European vacation I guess. Take time to think about eventual results. A good vacation improves performance in the long run and Europe needs the money in the short run. That makes it more of a business trip. The kids will enjoy it, so that makes it an educational trip. Children have an inborn quality to profit by such an education.

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Posted by: linlinmeihua | April 14, 2010 11:26 PM | Report abuse

i hate to sound pessimistic...but with the tensions in the Middle East rising...the economic instability in Europe rising along with the always accompanying nationalism...and with the strange calls for anti government rhetoric in this country(unlikely,mostly hot air)...does anyone get the feeling that major wars have in the past started in more stable environments?

Posted by: kiler616 | April 15, 2010 5:26 AM | Report abuse

LONDON -- Ash clouds from Iceland's spewing volcano disrupted air traffic across Northern Europe on Thursday as authorities closed British and Nordic air space, shut down Europe's busiest airport at Heathrow and canceled hundreds of flights.

I guess that long European vacation will have to wait until later. There's always Bermuda and clear skies and sandy beaches. Open an off shore bank account and make it a business trip. This is about to get a whole lot more dangerous! Profitable too, so pack lots of shorts and never refuse an option when you can get it. Got it?

Posted by: tossnokia | April 15, 2010 7:44 AM | Report abuse

No matter how much patching is done, a sovereign debt default is baked into the cake. Probably more than one.

Then the real issue is the trigger on the derivatives, held by the largest international banks, mostly. Many lack the capital to pay up ( like AIG/Lehman ). Look for the dissolution of the EU as each nation scrambles for cover.

In the meantime, the stock market goes up, up, up. Another symptom of Ponzi finance.

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Posted by: itkonlyyou7 | April 15, 2010 11:32 AM | Report abuse

I'm not so sure about your mathematics. The line you emphasized states that the growth [rate] will decline from +2.2% in 2011 to +1.5% by 2030. This means that growth will still be occuring in 2030, but at a slower rate. In calculus terms, the growth rate (slope) remains positive, while the change in growth rate (change in slope, or second derivative) is negative.

Posted by: shermasr | April 15, 2010 1:15 PM | Report abuse

In terms of endearment there is no doubt. Yet there is some doubt, so long as government remains ignorant of the important intelligence and they will remain ignorant. Imagine the feelings of many who were painfully aware that they were victims of a delusion then look at your numbers for the day. Feel better?

Posted by: tossnokia | April 15, 2010 4:46 PM | Report abuse

Simple banking theories. You must understand what banking is. I am the banker not you, my job is to take care of your money. Your job is not to take care of my money. You understand now, I am sure your do. If the publisher says I do, we could be talking about substantial profits as opposed to talking about sub-prime loans and other nonsense. We are better served writing numbers if the numbers grow larger as they have been known to do. Firmer than ever here at USG Corps. It's happy hour, so I'm getting plastered. I don't know about there and Iceland just exploded. She's a match on fire and I'm cold on ice. We'll do dead mans touch later and stock washing. See what washes up.

Posted by: tossnokia | April 15, 2010 5:19 PM | Report abuse

Remember that Germany invaded Poland because it needed to increase food production, and after WW2, agricultural production changed dramatically. That means Germany never needed to invade.

Iraq is sort of like that. We believe we need oil, but other energy alternatives can make petro-chemicals as useless as a horse and buggy.

All the economic projections assume zero breakthroughs, and zero setbacks like nuclear war and pandemic flu too.

Posted by: blasmaic | April 15, 2010 5:33 PM | Report abuse

Head for the islands and open accounts all over the place and buy a new house. You need more shelters and less taxes. I told the bureau that you can write your own ticket. Engraving still cost more than printing and high grade work is still high. Reward low grade work and you end up below grade. Those numbers suck as in 666 undertime and I'm doing overtime here. Slam her beats the slammer.

Posted by: tossnokia | April 15, 2010 5:41 PM | Report abuse

It's virtually impossible to grow your economy with present levels of debt, cross border immigration from poor to rich nations driving down wages in the host country and millions of worker bees laboring at essentially survivor wages, supplying the world with all the toys and trinkets they can consume.

Posted by: slim2 | April 15, 2010 8:36 PM | Report abuse

The above comments, to the extent that they aren't just shilling for sites selling shoes, seem to miss the most obvious demographic point. The population growth rate in Europe is about zero -- in fact the number of people in some countries is likely to shrink, just like in Japan. Thus the forecast growth rates translate into about the same value of 1% to 2% in per capita GDP growth.

The USA is about the only 'first world' country with 'third world' population growth rates: in 1900, the USA had about twice the population of Britain and about one and a half times that of Germany: now it has five times as many as the UK and four times as many as Germany.

Thus even if we achieve 5% GDP growth over the next 50 years, which is actually very good compared to the last 50 years, the per capita improvement is probably only half that. We actually are not going to be much better off relative to W.Europe unless you put a positive rather than a negative spin on just having more folks putting pressure on world resources.

Posted by: scotsbrian | April 15, 2010 10:34 PM | Report abuse

All those socialist countries in Europe going broke? What a shock. It is a system that doesn't work. The communists have proven that.

Posted by: sportsfan2 | April 15, 2010 11:26 PM | Report abuse

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