Debt dynamics

If a picture is worth a 1000 words, what’s the value of a video? Google has put some effort into data visualization. This example works in 5 dimensions at once. It’s on government debt in Europe. The kinetics of Turkey and Ireland are astounding.

43 replies on “Debt dynamics”

Its the Turkish Brown dwarf entering the Euro solar system and the Irish proto-financial planet ejected at escape velocity.

It’s the ‘mad’ (except for those who planned for it) bank guarantee of course which has Ireland so far out out of the solar system.

Great tool. Interesting all those countries that are relatively poor with low GDP/Debt ratios.

Great fun – one can sense the whack of the banks as they accellerated us into the outlier’s dumb zone :lor: Send it as a Leaving Cert App. Royalites to the Cork VdP.

Must be time to build and agree that post-national constellation – based on the dynamics here – simply draw a big Circle over the bleed1n lot o them and then let them muddle away and sort themselves out! Then we can all boogie for the next decade …

Its the Turkish Brown dwarf entering the Euro solar system and the Irish proto-financial planet ejected at escape velocity.

Very well put Dork.

It’s interesting to note that from 1995 to 2007, Ireland is a happy little orange dot, making good progress just to the right of the 0% surplus/deficit vertical line, with government debt going from 80% to just over 20% of GDP in those years.

Then, come 2007-2010, Ireland makes a violent turn, catapulting itself upwards and leftwards towards 100% of GDP debt levels, and a -30% of GDP deficit. It goes from a small orange dot to a big blue blob, definitely reflecting the national mood levels if nothing else.

If you look at the trends of the graph, while Ireland and Greece have clearly left stable orbits, Greece can be seen to be attempting recovery, with its deficit decreasing in 2010. Ireland on the other hand, has not only reached escape velocity, but is actually accelerating, with a deficit/GDP ratio over three times that of any other country. It’s as if someone hooked bankruptcy rocket boosters to the country in 2007 and has been firing them ever hotter over the last 4 years.

The Greeks may die before they fall to earth, but the Irish have gone straight to the moon.

The EFSF has recently said that it can now bailout banks. How unfair is that?
Irelands crisis was clearly completelty a banking crisis and Ireland could clearly not afford to bailout its banks.
However at the time the Germans especially said that there would be no EU wide rescue funds for banks and each country would have to ‘deal with its own responsibilties”. Ms Merkel.
At the time – Oct 2008, Daniel Gros wisely commented that if the shares in German banks fell by 25% the Germans might change their tune.
Now the French banks have taken a bit of a loss and hey presto – the EFSF can suddenly bail out banks.
Irish people should realise that they have been really treated unfairly here.
As commenters above have noticed our bankruptcy is all about our banks.

The Irish governemtn has already injected billions into the banks to save them from bankruptcy. Is the French government going to get off the hook and have all europeans save their banks?

Just the fact or garantee of letting extending the EFSF fund to the banks is a massive boost in itself. If an EFSF had stood behind the Irish banks in oct 2008 instead of the Irish governement (whose GDP was less than a 1/3 the size of the banks) it would have been much more effective.
Anyway I saw a poster here commenting on Berties description of the special relationship between France and Germany when the Germans only bought French governement bonds during the ’93 crisis.


“Is the French government going to get off the hook and have all europeans save their banks?”

You betcha!

Some are more equal than others.

@Chris & PRGuy

The only thing that would threaten French Banks is a sovereign default by Italy or Spain (or France), I do not think that in such an event ,the well-being of French banks would be a major consideration.
Since their banking collapse ,some Irish are looking for a foreign culprit, it seems that French banks are the latest convenient scapegoat. This is childish!

@ Chris I still can’t find any references to what you claim Chancellor Merkel said, as we’ve discussed before. Instead I find references to the total opposite. The one link from 2008 (7 October) you did give,,3695322,00.html should be read in the context that governments must not give banks too much support, without of course naming one little country in particular, as diplomacy required. But that advice was true for Germany as for Europe. And the article added, ‘Merkel continues to call for tighter market controls over the banking sector’, which was advice that doubtless applied Europe-wide too.

I think a reading of the news at the time – and my memory – supports the notion that there was considerable 1) surprise 2) then consternation, at Ireland’s decision to guarantee all banks (as evident in numerous public comments by officials at the time, if not Mme Merkel herself). There was never any question of Europe creating a Europe-wide fund to repeat the same mistake. Yes Europe should not have stood idly by when Ireland took unilateral action on its banks. But Europe’s leaders had other crises on their plate at the time.

When the crisis broke (Sep through to Oct 2008), the key reference I find from Dr Merkel is a Bild Zeitung interview on 2 Oct “The federal government cannot and does not want to issue a blank check for all banks, regardless of whether they have acted responsibly or not’. These views applied as much to German as to any other banks.

Later in Parliament on 15 Oct, Dr Merkel said the aid on offer “is about the protection of citizens, not the protection of banking interests … We’re offering something and they (the banks) have to offer something in return.” Etc.

At Colombey-les-Deux-Eglises, on 12 Oct, Dr Merkel said `Germany and France are united in that we need an agreed upon, coherent reaction in the euro-zone to the international financial crisis’. That was a clear invitation for the EU to work together.

I think it also interesting to note the Irish guarantee was not just a late night decision, that immediately became irreversible. Before the legislation was passed into law, there was time for reflection. The guarantee was signed into law late on 24 October 2008, a Friday.

@ Ciaran
What I claimed Ms. Merkel said – that she was opposed to a common european fund to support banks in oct 2008 – is in the article you linked to above.
I qoute “But German Chancellor Angel Merkel continued to oppose a European fund to rescue struggling banks, saying that each country needed to “face up to its own responsibility.”

Here is another quote from Daniel Gros, director of the Center for European Policy Studies in Brussels from Oct 2008.
“Italian Prime Minister Silvio Berlusconi wants a joint European fund to rescue European banks. To which German Chancellor Angela Merkel says: Nein!”
Now MS Merkel has changed her micd. The EFSF can rescue banks. French and German banks have lost much of their share value in the last month, over 30%, So now each country does not have to “face up to its own responsibilites” when it comes to banks.
As I said before a poperly organised EU fund for rescuing/garanteeing bank deposits on an EU wide basis should be put in place, funded by the banking industry itself thorough premiums, as there is in the US – FDIC.
As that takes a while to build up funds I thought that the other EU countires could have put money in place through a fund involving some taxpayers money and other EU banks.

Congratulations for pointing out that another course of action was available in 2009 whereby the Irish authorities could have been let fail in Sept rather than guaranteed. However, would such a policy not have run counter to the wishes of the ECB would throughout the crisis have requested politely that taxpayers make good on all claims?


The Greeks may die before they fall to earth, but the Irish have gone straight to the moon.

Have a look at Iceland.
It looks like they took one look at the moon and decided to keep their feet on the ground.
Ireland regretably was so far off the ground that it confused a cushion of self propelled hot air with a ‘soft-landing’ runway.

@ Gavin
“The first step was taken recently when the European Financial Stability Facility was authorized to rescue banks as well as governments.” I am trusting George Soros on this.
It always interesting to read Soros, I always keep in mind that Soros is talking as an investor and speculator and is trying to paint the future from their perspective. Obviuosly they want the taxpayers of low debt countries to stand over the high debt ones to protect their investments.

Interestingly if you have been following Soros he is extremely critical of the Germans and their role in the crisis –
“In fact, Germany has been bailing out the heavily indebted countries as a way of protecting its own banking system. For example, Ireland’s massive sovereign debt arose because eurozone authorities, intent on saving the banking system, forced the Irish to nationalize their banks as a condition for keeping them afloat. Thus, because the arrangements imposed by Germany protect the banking system by treating outstanding sovereign debt as sacrosanct, debtor countries must bear the entire burden of adjustment.”

@overseas commentator,
I agree Ireland is the number one culprit for its own mistakes by running up a massive property bubble and deciding to garantee and bailout insolvent banks.
Ireland does not decide its monetary policy, the ECB does. Irelands financial institutions are completely integrated on the EU wholesale market, meaning availability of cheap credit from other EU banks.These factors are also key as to why a property bubble was formed and Ireland was pressurised to bailout its banks.
Ireland is part of the EU. The EU could do a fairer job of assisting Ireland. This has been stated by many commentators before especially American academics and as my post above George Soros. Now we can see that it is reality by the immediate change in stance of everyone from the ECB to Ms. Merkel once Italy gets into a bit of bother.


Italy is more important because it is so big that no bail-out is possible.It is not fair to Ireland,but also maybe for Italy.

@ chris

Thanks for that. Yes, he certainly did say that.

I had a quick look at the EFSF’s own Q & A website, here:

Which says

” A13 – Will the EFSF bail out banks?

The EFSF provides loans to countries in financial difficulties. But it could be agreed with a Member State that receives funds to use them to stabilise the banking sector, as has been demonstrated by the programme for Ireland. €35 billion out of the total €85 billion of the Irish programme has been allocated to the banking sector.

“Following the euro zone summit on 21 July, it was agreed that EFSF would be able to provide financing to non-programme countries with the objective of recapitalising financial institutions, subject to ratification of an amendment to the EFSF Framework Agreement”

@ Gavin/Chris

the clause on EFSF-related bank rescues was almost certainly aimed at Spain, and to a lesser extent, Belgium.


I agree Ireland is the number one culprit for its own mistakes by running up a massive property bubble and deciding to garantee and bailout insolvent banks.

The Irish registered banks were primarily responsible for the property bubble, and the Irish government/regulator, but not ‘Ireland’ in my view. It is a question of who is Ireland?
The same applies to the guarantee.

And if the EFSF decides to start ‘bailing out’ banks i.e European wide bondholders, the first dockets on their desk should be the Anglo/INBS bonds.
Surely nobody thinks that the Irish will be so dumb, despite substantial evidence, to keep paying bondholders in dead banks, while a new Euro fund decides what bondholders to pay and how much to pay them in respect of other European banks.

The answer from the EFSF makes it clearer.

@ Eoin
French banks have a 781billion exposure to the piigs (IMF2010). They are easily the most on the hook.
BNP Paribas, Credit Agricole, and SocGen: have assets accounting for 237% of French GDP.
So I would say the clause was aimed at France along with Spain and Belgium.
Basically all EU banks have been performing poorly since the stress tests with average losses in share prices of around 20%. Frances banks made the biggest loss of 32% since then.

@ Chris

those IMF numbers, like the BIS ones, need context. That exposure is across a wide variety of counterparty types, and of differing tenor lengths. Some of it will be short term inter-bank, some of it will be intra-company, some of it will be consumer and corporate exposure, some of it will be covered bonds, and some of it will be sovereign. The big ugly IMF figure doesn’t reveal the quality of it all.

But my point is really that the French banks, as things stand, are actually in relatively decent shape, whereas there is much more acute capital issues in some of the Spanish and Belgian banks.

@ Chris, Mr Bond, Joseph Ryan, etc

I take it that the plan is that the EFSF can lend money to a country where a bank or banks are in trouble. That money be used to bail out the bank, and be paid back by the state to the EFSF. Presumably, short of a disaster, the state gets equity in the bailed-out bank and attempts to get its money back that way.

So I don’t think that Ireland is being treated ‘unfairly’ here as this close to what is happening in this country – with the bit where the state gets the cash back not yet sorted out.

I do, however, think this is a problem as it looks like another channel by which tax-payers money is put at risk for failing banks. You can see it will be annoying for the tax-payers of the state receiving the loan, as suddenly their GGD will go up to rescue a private institution, and annoying to the tax payers of the other states as well, who will be told inventive things about the defects of the national character of the euro country involved.

The language is that of help, but I imagine that in real life, what will happen is that the bank will be busy covering up the extent of its real losses to the last minute and then get in touch with its own government at the eleventh hour, whilst getting their other bank mates to elbow the ECB to point out what a systemic disaster it would be if they went under. The ECB will then get out it’s top secret, secret letter writing machine (no headed paper you understand) get on to the EU, EFSF and the government to force the money through quick-sharp. The bank will be saved and along with it the European financial system (huzzah!), and strangely more debt will appear on public books. This will all be done for the good of the bemused and disgruntled tax-payer, because otherwise the cash machines would have run drier than a dry martini on a Monaco berthed yacht at sunset.

So, essentially I agree with chris that if a super-fund to support floundering financial institutions is needed it should be collectively funded by those institutions.

Like Violet Elizabeth Bott, I shall now hold my breath until it is so.

@Gavin Kostick

In 2008 the French State as made an emergency loan of 10.5 billion €
to the French banks .That money has been paid back before its term because the rate of 6.5% was much higher than what the banks could get on the money market .The tax-payer did very well .
Not all emergency funding goes awry ,there is still hope.

Sarkozy: Euro Zone Bonds Could Harm Bloc’s Healthiest Members
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‘Ireland’ is your average voter, 48 years old, owns their own property. They were delighted with the property valuations of the noughties. Showed their approval by re-electing the government. They had a choice in the last election to vote for candidates who opposed bank bailouts. They chose not to.
Usually in a democracy the minority is supposed to be listened to and considered too. During the boom the minority was ignored. Unfortunatly there doesn’t seem to be much consideration of the minority in the Dail (Ireland) these days either.
Perhaps we can have more education on democracy for our young people.

@ Gavin,
My first impression was that the banks were able to be rescued directly by the EFSF. Thanks to the post above it is clearer that the loan is going through the government.
There are still some unfairness questions.
I wonder about the interest rate on the theoretical loan? prob less than Irelands with its 2.8% extra charge.
Are there going to be other conditions placed on the governments as in Irelands case, such as they need to use up their protected national pension reserve fund? Probably not.
An EU wide banking rescue fund offering a low interest rate from Oct 2008 would have helped the Irish banks and state. It could even have kept us from being pushed out of the bond markets. Dr. Merkel said no. Now she has changed her stance.

Maybe we can hope that another country gets funds for their banks at a lower rate and then we can ask to have our 35billion for the banks at the lower rate.

@ Tull McAdoo, Chris et al
You could refer this ECB decision before the Irish guarantee was passed into law “Opinion on the implementation of financial support measures for credit institutions (CON/2008/48) Ireland, 15.10.2008. There was another statement from the commission. Both of these are couched in cautious but press comment from the officials and politicians at the time leaves no doubt (for me at least) that many in Europe were seriously alarmed at the Irish governments go-it-alone initiative. These were actually pleas for Ireland to work with the rest of Europe, not the inverse. As Frankfurt said at the time, “the ECB notes that uncoordinated decisions to guarantee interbank deposits in Member States should be avoided”…
And in the Oct 2008 decision “The ECB also notes that the Heads of State summit declaration states that the euro area Governments would make available a Government guarantee of new medium term (up to 5 years) bank senior debt issuance”. Did Ireland do that? Yes, and tons more, going far beyond the mandate given by the EU Council. Quite incredible. The ECB doesn’t deserve medals for dissenting in couched terms from the Irish government’s actions at the time.

= = > But let’s not inverse history and blame the ECB, the EC or anyone else abroad for the Irish government’s remarkable decisions at the time (with limited domestic opposition to boot) and the consequences.

@ Ciarán O’Hagan

Summary from the BBC programme, ‘For the Love of Money’.

“European reactions to Irish bank guarantee

“The programme highlighted the fact that Ireland’s decision to guarantee its banks resulted in a rupturing of the principle of united European action on the financial crisis.

“It also detailed the response of Europe to the Irish Government’s decision to guarantee the country’s banks, claiming the Minister did not tell Europe about the plan “until the last minute”.

“Minister Lenihan outlined how he called his French counterpart, the French Finance Minister Christine Lagarde to inform her of the guarantee.

““She was the President of European Finance Council at the time and I felt she was the appropriate person on the political side to advise and so I spoke to her in French and advised her that we were guaranteeing the Irish banks,” the Minister said.

“Christine Lagarde also gave her reaction to the Irish move, saying that Minister Lenihan had given her a call around the time the stock markets were opening to tell her about the guarantee and her reaction was: “I thought, ‘oh gosh’”.

“Lagarde said the French had to react “very swiftly” to the news from Ireland and that she had several telephone conversations with colleagues to build up countermeasures to the Irish guarantee to ensure that investors did not rush to put all their money in the Irish banks.

“Minister Lenihan said that Lagarde “didn’t seen too surprised. She took it very much in her stride”.

“The UK Chancellor Alistair Darling also gave his opinion on the Irish Government’s bank guarantee: “It just would have been a lot better if we had known in advance because we would have had proper measures in place when the bank branches opened.

““The lesson you draw here is you can’t do these things on your own, you’ve got to talk,” he said.”

A quick glance shows it is on youtube.


I wonder if the receipts from new ‘financial tax’ will provide income to the EFSF to bail out bust banks. In which case the cost of ‘bust banks’ will not fall on the sovereigns. In such a case as the Irish bank costs have already fallen (been foisted on) the sovereign, then the treatment of Ireland will indeed have been unfair.

And so to the Merkel/Sarkozy ‘new’ Financial Tax idea. Of course it should have been put in several years ago but as the Financial Industry controlled governments, there was no chance of that.
We will have to see this new tax implemented with all the vigour of the middle ages ‘nose tax’, before I believe that democracy is reasserting itself.

@Ciaran O’Hagan

But let’s not inverse history and blame the ECB, the EC or anyone else abroad for the Irish government’s remarkable decisions at the time (with limited domestic opposition to boot) and the consequences.

Considering all the finely couched advice from all these on high institutions not to guarantee banks, is it not amazing that they are now insisting that all guarantees must be met.
When did the logic of their earlier positions change?
As soon as the Irish stuck their heads in Dracula’s den and others started to benefit from drinking the blood being spilled?

Seen from abroad ,this argument about who is to blame seems pointless. There will be enough challenges to meet in the near future to keep everybody busy.


One of the three main French banks is well capitalised although a bit dependant on wholesale funding, one is grossly under capitalised-on some measures insolvent and the third one is well capitalised on the basis that it makes it numbers over the next three years.

SO I get it now. the ECB did not want us to guarantee all liabilities at the time. that makes sense. Unfortunately, all its actions before or since implied repaying seniors in full even in failed banks. Is that not a bit contradictory.

@ Ciaran O’H

you keep referring to the guarantee brought in in Sept 2008. However, it has long since passed and we are still backstopping all senior creditors, and have only recently put the sword to the subordinated ones. While the guarantee denied flexibility, ultimately would we not have ended up with much the same position anyway, one very much dictated from Europe – that no bank could face a Lehman’s style bankruptcy, and that no bank could seek to enforce losses on senior creditors or depositholders?

I spend much of my time now on Irish os maps with different dates – its quite some spectacle

Go to the historic archive window / then the Browse maps section – pick any rural area with road access lets say 10 kms north of Cork city and shuffle the 1995 – 2000 – to 2005 dates – mushrooms frigging mushrooms everywhere – my once beautiful country has been destroyed by cheap German credit & greedy stupid Irishmen.

The malinvestment is off all known scales.
Vandalism on such a scale is awe inspiring in its ferocity.

@ Ciaran O’H

I would be interested in knowing the answer to the question @Bond. Eoin Bond posed at 10:00pm

If the ECB is so blameless as regards our continuing repayment of bond holders for insolvent banks (and the possible bankrupting of the state), why have they insisted that the guarantee be renewed again and again?

Tax payer funded bailouts of Eurozone bank’s bondholders (well, seniors) remains ECB policy, and the ECB has made clear that make continued emergency funding is dependent on continued bondholder protection.

Hard to dispute I would have thought.

We can not blame the ECB for our poor bank regulation, but we can certainly hold them responsible for their own policies over the last ten years. Why is it so hard to admit that in the ECB Ireland have a foe?

It takes more than a tango to make up a quorum in a post-national European constellation. How many more, of course, remains an open question.

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