Debt-to-revenue ratios reveal most indebted EU nations

The Guardian, LONDON

Tue, Jun 11, 2013 - Page 15

Ireland, Greece and Portugal are laboring under debt-to-income ratios of more than 300 percent, according to figures that expose the indebtedness of eurozone governments in relation to their government revenues.

The measure, intended to show governments’ abilities to pay debts, showed that Ireland’s total debt last year was 192 billion euros (US$253.69 billion), or 340 percent of the Irish government’s income.

Greece has amassed an even worse debt-to-revenue total of 351 percent, Portugal came third with a ratio of 302 percent and Britain was sixth on the list of 27 EU member states with a ratio of 212 percent, according to calculations based on European Commission figures.

Debt figures are usually calculated as a ratio of national income and expressed as a proportion of GDP, but national income figures reflect activity across the whole economy, whereas governments must pay debts from tax receipts and other government income. Therefore, some analysts say that a government’s debt-to-revenue ratio provides a clearer picture of its ability to fund annual debt payments once interest rates are taken into account.

Using this measure, the US is in worse shape than Greece. Its US$16 trillion debt is the equivalent of 105 percent of GDP, but more than 560 percent of government revenues. The US’ debt payments are cheap due to the low interest it pays on government bonds, but with revenue of 14 percent of GDP, compared with about 40 percent across much of the EU, its ability to pay is weakened.

Ireland, which is often commended for its recovery from the banking crash, has seen a sharp rise in its debt-to-revenue ratio in the past four years. In 2009, its ratio was 187 percent and a year later it had jumped to 262 percent, before reaching 340 percent last year. However, it appears to be in better shape when debt-to-GDP figures are used. Using this ratio it ranks fourth, with 117.6 percent, after Greece, Italy and Portugal.

Greece has improved after it pushed through a huge clampdown on public spending and has seen its ratio fall from 402 percent in 2011 to 351 percent last year.