In late June, European Union officials announced they were close to arriving at a solution that would see in excess of 100 billion euros made available to Greece. The plan includes a provision to “roll-over” a percentage of the debt owed to investors. Innocuously described as a “re-profiling” of Greece’s debt, the intent is to give Greece a little more breathing room by delaying the payout on maturing securities for those investors willing to wait for full payment.
This scheme was well received and even actively promoted by the major financial institutions in France. This enthusiasm is understandable when you consider that public and private banks in France alone have nearly 57 billion euros invested in Greek bonds and other government debt. German financial institutions are also heavily invested with 34 billion euros at stake and they too – albeit somewhat grudgingly – agreed to roll-over a portion of the maturing debt. Being forced to wait for full payment is obviously preferable to taking a loss.
Which economies have fared best and worst during the global financial crisis?
GDP growth rates slowed sharply in most rich economies in the second quarter. So where does that leave output relative to its level before the start of the financial crisis? If we rank the G7 countries according to the change in real GDP since the end of 2007, Canada tops the league. But Canada, like the United States, has a fast-growing population, whereas the number of Germans and Japanese has started to shrink. GDP per person is therefore a better measure of relative performance.
As the chart below shows, by this gauge Canada is still 1% below its pre-crisis level and America is 3.5% down. Among the G7 countries only Germany has regained its end-2007 level. Comparing output now with its level before the crisis actually understates the depth of the slump. An alternative yardstick (seearticle) is to compare GDP per head now with what might have been expected if it had continued to grow at the same pace as during the ten years before the crisis. On this basis, even Germany has not yet caught up, and Ireland’s income per head is now a painful 25% below its previous trend.