Beyond Greece or The Leftovers

As the Greek pageant plays out, I decided to have a look at what has happened to the other Euro-zone countries that have been the targets of market angst. For simplicity, I thought it would make sense to look at growth and debt levels in recent years to see what progress has been made by the countries known colloquially as the PIIGS.

Below, courtesy of Eurostat, is a chart of quarterly real GDP growth from the same quarter in the previous year for the 8 quarters ending in Q1 2015.  It shows the euro-zone polar opposites of Greece and Germany for comparison. The most striking thing about this chart is that Ireland, Spain and Portugal, the countries that instituted structural reforms, have been growing and the growth appears to be improving. Indeed for Ireland and for Spain, should it be able to sustain its recent growth, such growth rates will help cut into their debt burdens.

DE&PIIGS GDP 062315

Quarterly Growth year-on-year Q2 2103 – Q1 2015 : Eurostat

France, a core euro-zone country, that has similar problems to those of the European periphery, turned in a mediocre performance.  Italy, which has barely nodded in the direction of reforms, eked out one positive quarter in the last two years.

When we look at the trend in debt burdens from 2011-2014 the results buttress those from GDP growth. Ireland’s debt came down in 2014. It is probably the furthest out of the woods. Portugal’s debt burden barely grew, but it is high. Growth is on an improving trend, but is not robust.  There are concerns that Portugal could be the next target should the Greek drama turn to tragedy: http://on.ft.com/1BJkrrc

EU Debt2GDP

Gross Government Debt to GDP 2011 – 2014: Eurostat

Spain’s accumulation of debt versus GDP could be decelerating.  The growth numbers may mean that it has turned the corner.  Spain is seeing a foreign led improvement in its real estate, a major cause of its troubles: http://on.ft.com/1GEsdRY .   Savvy foreigners tend to provide capital when they believe a situation is improving.  Domestic buyers are stirring too, another good sign. Markets love positive sentiment and positive sentiment tends to reinforce itself.

France and Italy are the most concerning to me in the long run.  They have the potential to be Greece writ large. Both have failed to undertake or have barely scratched the surface of structural reforms.  Low interest rates and a weak euro cannot mask their problems forever: http://on.ft.com/1KbJ6at

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