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Guest Post: Deficit Crisis: Cyprus, Denmark And Finland Join The Watchlist
Submitted by Frode Haukenes of The Econotwist Blog
Cyprus, Denmark and Finland have joined the ranks of EU member countries with government deficits deemed high enough to pose a threat to the wider European economy. The commission
is now recommending they be placed on its list of countries warranting
further scrutiny of public finances. Until recently, these countries
seemed to be doing well.
“The sudden turnabout shows the severity of the economic crisis, which has wreaked havoc with public spending.”
Including the three newcomers, EU’s watchlist now
consist of all but one of the 27 member countries. Only Luxembourg is
not running a deficit that is well over 3% of gross domestic product – the official EU limit, the EU commission write on its website.
Luxembourg finished 2009 with a shortfall of around 2%.
Cyprus recorded a shortfall of 6.1% of GDP last year.
Deficits are expected to reach 5.4% this year in Denmark and 4.1% in Finland.
Setting Deadlines
As it does with all countries under scrutiny, the commission has
proposed deadlines for Cyprus, Denmark and Finland to correct their
deficits.
Finland would have until 2011, while Cyprus and Denmark would have until 2012 and 2013 respectively.
So far, 12 member countries have taken what the commission considers to be effective action to close their gaps, cutting government spending and introducing revenue-boosting measures as promised.
The Fab Four
Among them are Ireland, Italy, Portugal and Spain – 4 countries at the center of concern about high national debt looming over the euro zone, the EU commission points out.
Germany, meanwhile, has moved to boost consumer spending – in response to worries that the country’s fat trade surplus is hurting other EU economies.
But the country has also outlined deficit-reduction measures for 2011 and beyond.
The other countries reviewed in the latest commission report are Austria, Belgium, the Czech Republic, France, the Netherlands, Slovakia and Slovenia.
A Sudden Turnaround
Until recently, both Cyprus, Denmark and Finland seemed to be doing well, the EU commission writes.
EU monetary commissioner Olli Rehn says the sudden turnabout “shows the severity of the economic crisis, which has wreaked havoc with public spending.”
The 3% limit on deficits – part of the EU’s stability and growth pact
– is meant to prevent imbalances that could undermine confidence in the
euro zone, as happened last month during the Greek debt crisis.
»
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What about Lichtenstein and Andora? Too smart to join EU? Maybe they should link with Iceland and become the EuroCore.
Correct. Too smart to join and get pressured into "tax harmonization" = You must milk your cows as hard, long, and often as the rest of us EU wankers.
OMFG, I thought Finland and Denmark were in decent shape compared to most places.
The EU is toast.
As Monaco and San Marino.
As NOK goes in Finland so goes the country. Apple is making motorola, rimm, ericsson, nokia, dell, samsung IRRELEVANT. Not good for illinois, canada, sweden, finland, austin and korea.
Why don't we start with the full list and work backwards...
I guess he didn't get the memo that Spain's problems are just rumors.
Finland? Come on, now.
Their deficit just now topped 3% -- this is the only country to fully pay their WWII reparations.
Color me unconcerned.
Don't touch that Leper.
need a good acronym for all this...
Finland Cyprus Denmark
F*C**D
Portugal Ireland Italy Grecce Spain
PIIGS
F*C**D PIIGS
:) very funny
Thanks, I'm the FNG here and you guys are great to read.
France UK Germany
FUGs
They should just play rock, paper, scissors and work it out.
In 1995 Finnish sovereign debt was 60 billion euros. Their economy was recovering nicely from the 1989-93 dip, and the country had some very good years. Further down the road, the early 2000's were an economic boom. During those fat years, Finland reduced its debt by only 6 billion euros, even though government's income from taxes rose considerably and the state privatized 16 billion worth of assets. Finnish government debt stands currently at ca. 70 billion euros - still really not that much. But they're borrowing to the tune of 1 billion/month just to keep the ship afloat, and there's absolutely nothing in sight that would turn the economy back to a growth track. A bit less known piece of information is, Finnish unfunded pension liabilities run at 400 billion euros.
The Nordic welfare state is just one form of Socialism. Maybe a softer kind of Socialism, but Socialism nevertheless. Someday, something's got to give.
Oh well. Same predictions can be applied to any other western country nowadays - average age is going up, sovereign debt grows and there's nothing in sight to turn economy back on track. By watching the sovereign CDS spreads regularly posted here in ZH, Finland is actually in relatively good position.
And even the US is going socialist nowadays, so yeah - I guess you're right :)
Those EURUSD bullish warnings have strengthened further today.
Vice versa for the USD index of course.
It seems the current EURUSD downleg has ended.
http://stockmarket618.wordpress.com
more comments from GS on the topic of the thread. GS is so insightful and courteous, he doesn't just fill the space up with a &#%^ ad. What a super nice person!
As has been said before, contagion is well underway.
Hungary may be a "small" country, but Austrian banks have a lot of exposure to Hungarian sovereign debt and Hungarian businesses and real estate. Austrian banks exposure to sov. debt of Romania and Hungary is about $80 Billion, more than French bank’s exposure to Greek sov. debt at about $78 Billion.
Greek exposure to Romanian debt and Bulgarian debt is about $40 Billion. Half of Austrian bank exposure to Romania and Hungary.
Hungary and the much larger Ukraine, are already operating under austerity programs with loans from the IMF.
Just as the likelihood of catching a virus increases with the number of people you shake hands with at a function, so too does the risk of contagion rise with more exposures to debt repayment problems. Hungary has been "taking the medicine" for 18 months already and not only isn't "cured", it is still contagious to others.
http://credibleclarity.com/CC/Blog/Entries/2010/6/14_Contagion_is_Not_ju...
Do not kid yourself. We are in the middle of an empire. What seems like small unimportant countries or economies are vast money funnels for our empiral bank system. Except they replaced taxation without representation with interest payments.
Broke Greece is not "fiscally irresponsible" it's just been blead dry by various banks in the EU. All it takes is for one sovereign to default. If there's no consequences another will default. If there is consequences then there's no pussy footing around. It's a default mellee. It may seem like a trivial thing but once it unravels it won't be a few pimps trying to get their hoes back in line it will be dozens of hoes trying to get rid of the pimps while the pimps host countries are in anarchy as well.
The fact is that Denmark (like Norway) have been "covered" their deficits for several decades behind the temporary high income from the oil&gas industry.
Denmark's deficit can explode to 120% of GDP over the next years, according to Danish economists. It's most likely a similar risk for Norway.
Here's some more info on the subject:
Denmark In Danger Of Becoming The “New Greece”
Danish Homeowners Are Insolvent
Norway May Reject Its EU Association
Norway: A Mutated Dutch Disease
I don't know the Swedish and Finnish economies that well, but all the Scandinavian countries are based - more or less - on the same fiscal principles/models.
Maybe the time is right for the 100 year old idea of a Nordic Union to surface again ?
econotwist
Many thanks trx. I had the impresson Denmark/Norway were in better shape and am looking forward to reading those links.
Maybe the time is right for the 100 year old idea of a Nordic Union to surface again ?
Before that, Denmark and Sweden would need to secede from the European Union. They could re-join EFTA, which gives basically an open access to EU markets, without the Brussels bureaucracy and idiotic directives. Even then, they'd probably better just form a political union, without too close economic integration. A common Nordic currency might already be a mistake.
A Nordic Union (Sweden, Denmark, Norway, maybe Iceland) with its 20 million inhabitants wouldn't shake the Europe, but their economic influence could be relatively large. A Nordic Union would be a regional power with a high degree of independence, not needing much from the outside. They've got oil, raw materials, agriculture, shipping, weapons, high-tech, well-known consumer products...
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