Chart of the day: Euro nations with largest deterioration in fiscal situation

Here are two interesting charts courtesy of the Macro Business Superblog. In outlining how the latest European crisis response policy fails to deal with the underlying issues in Euroland, Macro Business also illuminated the individual debt and deficit trajectory of each euro nation. The charts highlight where the euro area countries have broken the Maastricht stability and growth pact criteria.

Here’s what you should notice.

1. Deficits and debts skyrocketed as a direct result of the crisis. Only three tiny nations held their deficits to within the 3% SGP maximum: Estonia, Finland and Luxembourg. The other countries saw deficits increase due to the fall in aggregate demand. Of non periphery countries, France and Slovakia stand out here as having the highest deficits.
2. The countries with the largest increase in debt as a percentage of GDP from 2000 to 2010 were Ireland, Portugal, and Greece, the main reason they were forced into IMF bailout packages. However beyond those three, the worst increase was in Germany and France.

This should tell you that the eurozone crisis is not only about debts and deficits since Spain and Italy are the focus of the sovereign debt crisis at the moment.

To the degree that debt and deficits are the problem, these charts also tell you that Germany and France will (deservedly) find their way onto the hot seat until the Europeans choose one of the two or both of the systemic solutions correctly identified by Macro Business: credit writedowns, and a lender of last resort.

All of the euro zone countries face liquidity constraints and all of them will eventually succumb to the rolling wave of yield spikes one by one until we get a systemic solution: full monetisation and union or break up. Until then, the crisis will continue and deepen as fiscal cuts increase the severity of the depression.

Full analysis on the crisis summit’s failings at the link below

Source: Europe’s suicide pact – Macro Business Superblog