Aside from the Greek circus, Spain is now the cockpit of the eurozone government debt crisis. How does Spain look as she confronts the need for a big bailout?
For the sake of this discussion, let’s agree that the ratio of government debt to GDP is a good measure of sovereign risk. Both government debt and GDP are nominal figures; no complicated constant dollar calculations are required. Government debt grows at the rate of beginning period debt plus the current year’s fiscal deficit in current dollars. For the D/GDP ratio to stabilize, nominal GDP must grow at the same rate as the deficit as a percent of GDP. Not rocket science.
Let’s take a look at Spain’s numbers.
Spain’s nominal GDP (EUR B), as calculated by the OECD, has been pretty flat:
2007: 1,053 (+7%)
2008: 1,088 (+3%)
2009: 1,048 (-4%)
2010: 1,048 (+0%)
2011: 1,063 (+1%)