Darvas, Z. & Pia Hüttl, P. (2014) “Despite lower yields, euro-periphery is not yet out of the woods – while the public debt ratio is expected to fall, the debt trajectory remains highly vulnerable to negative growth, primary balance and interest rate shocks“, Working Paper – European Macroeconomics, Bruegel Association, 18 Ιουνίου.
Following Ireland, Portugal has also exited its financial assistance programme in a clean way, namely without any follow-up credit line. Greece has successfully issued €3 billion 5-year maturity bonds in April 2014 at a yield of 4.95 percent and the issuance was largely oversubscribed. Even the 10-year government bond yields have declined significantly in the three countries and are now at a level close to, or even below, the 2008-09 yields (Figure 1).
Do these undoubtedly benign developments suggest that the three euro-periphery countries have reached a sound and robust fiscal situation? Unfortunately, the answer is no, as we conclude in our working paper published today, which assesses public debt dynamics by updating the February 2014 debt simulations done in Darvas, Sapir and Wolff (2014).
On the one hand, our findings continue to suggest that the public debt ratio is set to decline in all three countries under the maintained assumptions and in fact their future levels are now projected to be slightly lower than in our February simulations (eg for 2020 our new results are 2-3 percent of GDP lower). But on the other hand, the debt trajectories remain highly vulnerable to negative growth, primary balance and interest rate shocks, especially in Greece and Portugal, though also in Ireland.
Σχετικές αναρτήσεις:
- Tse, Τ. and Esposito, Μ. (2014) “Investing in ‘pockets of excellence’ in periphery countries would help the EU address its lack of competitiveness“, LSE Blogs, 19 February.
- In’t Veld, Y. (2013) “Fiscal consolidations and spillovers in the Euro are periphery and core.”, European Commission, Directorate-General for Economic and Financial Affairs, Economic Papers 506, Οκτώβριος.
- Wright, T. (2013) “The Periphery Six“, Project Syndicate, 14 Οκτωβρίου.