From 24/7 Wall St.: The Greek government on Sunday agreed to drastic austerity measures in the hopes of securing a 130 billion euro bailout from international creditors — the second bailout in two years. The measures include dramatic cuts in pay, pensions and government services.
The creditors, which include the European Commission, the International Monetary Fund and the European Central Bank, demanded that by Wednesday Greece show clear evidence of how it will make 325 million euro of the 3.3 billion euro cuts. Greece, which has among the worst debt in the world, faces default as early as March if it does not get the bailout.
In addition to Greece, several European Union member countries now face overwhelming government debt. On Monday, Moody’s downgraded six countries, including Italy, Portugal and Spain. Other countries, like Germany and Japan, also have burdensome debts, but unlike Greece or other troubled EU members, their debt problems are not unmanageable. 24/7 Wall St. has identified the countries that have the highest debt-to-GDP ratios.
Many of the countries with the highest debt levels relative to their gross domestic products have been hit hardest by the global recession. Greece, Ireland and Portugal all have unemployment rates above 14 percent. Wealth in these countries is extremely low. In the case of Portugal, GDP per capita in 2010 was just $25,575, lower than every country in the developed world except Slovakia. The combination of extremely high debt, high liabilities and sinking national productivity has resulted in credit downgrades to below investment grade, or junk, bond status. Moody’s rates Ireland “Ba2,” Greece “Ca,” and just downgraded Portugal to “Ba3.”
The increasingly dire situations of several of these nations have forced their governments to enact desperate measures or face financial and economic ruin. Greece is not the only country to recently pass and implement austerity measures. In November 2011, Portugal passed a new austerity budget, which raised taxes on the population and cut the wages of all government employees. In Italy, the retirement age has been raised, and levees on pensioners have gone up as well.
Not all of the countries with extremely high debt relative to their GDPs are doing poorly. Government debt of Germany and Japan is high, but these countries can afford it. Their high debt-to-GDP ratios are balanced by relatively strong economies and wealthy populations. Germany has the highest GDP in Europe and the fourth highest in the world. While Japan's economy was derailed by the earthquake and resulting nuclear tragedy, it remains the third-largest economy by GDP.
Though countries like Germany, France, UK, the U.S. and Japan continue to have relatively stable economies despite their massive debt, this may not always be the case. Last year, Standard & Poor's downgraded both France and the U.S. from perfect AAA ratings. Yesterday, Moody’s gave France and the UK negative outlooks.
While many of these economies have started to recover from the recession, they continue to accrue debt. In some cases, even the world’s wealthiest economies have been forced to pass austerity measures of their own. Many U.S. states, for example, have made substantial cuts to government workforces.
24/7 Wall St. ranked developed countries by estimated general government debt as a percentage of nominal GDP for 2011, based on data provided by Moody’s Statistical Handbook for 2011. 24/7 also reviewed nominal GDP, nominal GDP growth, GDP per capita (PPP) and sovereign credit rating from Moody’s. All of the data from the handbook is an estimate for 2011, with the exception of GDP per capita, which is for 2010. Unemployment rates are from the Organisation for Economic Co-operation and Development.
These are the 10 countries deepest in debt, according to 24/7 Wall St.: