Industrialised sovereigns in trouble

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13 May 2010

Commentary from Peter Hall, vice president and chief economist, Export Development Canada (EDC).

News about worsening public finances in Western Europe rocked global financial markets last week, and revealed an underlying fragility in confidence. Apparently, patience with the on-again, off-again approach of policymakers to the problem zones wore thin. Was the reaction overdone, or overdue?

Prior to the recession, fiscal management in the Western world generally seemed to be going well. Public debt as a share of GDP was close to the 60% Eurozone Maastricht debt target in both Germany and France during the 2002-07 period. Although not bound by this target, US public debt-to-GDP was bang on 60% for the same time period. Britain’s ratio was exemplary at 40%. Ongoing prudent fiscal management in Canada lowered our...

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