European Central Bank: National debt approaching danger levels across Europe
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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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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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