Loans and debt
Debt is a major problem for many countries around the world. It's important to distinguish between types of debt.
Private debt - the amount of money borrowed by individuals. This is usually not included in the debt figures for countries.
Public debt - the amount of money borrowed by the government. This is the amount of 'debt' usually referred to.
The difference is important, because some countries that appear to have very high levels of debt actually only have high levels of public debt. In Italy, for example, debt reached 160% of GNI during the financial crisis from 2008, yet most individuals had little debt themselves. This meant the country was in a stronger financial position than the headline debt figure would suggest.
The graph below shows the external (foreign) debt owed by countries. It 's clear that there is a positive relationship between the size of the economy and the size of the government's debt. However, this debt is usually not a major problem for these countries because proportionally it is very small.
Private debt - the amount of money borrowed by individuals. This is usually not included in the debt figures for countries.
Public debt - the amount of money borrowed by the government. This is the amount of 'debt' usually referred to.
The difference is important, because some countries that appear to have very high levels of debt actually only have high levels of public debt. In Italy, for example, debt reached 160% of GNI during the financial crisis from 2008, yet most individuals had little debt themselves. This meant the country was in a stronger financial position than the headline debt figure would suggest.
The graph below shows the external (foreign) debt owed by countries. It 's clear that there is a positive relationship between the size of the economy and the size of the government's debt. However, this debt is usually not a major problem for these countries because proportionally it is very small.
Heavily Indebted Poor Countries Initiative (HIPCI)
The HIPCI is also featured in Core 2 as a method of reducing disparities. It was established in 1996 and led to 36 countries receiving debt relief.
A word about Greece
Greece is a member of the Eurozone group of countries which use the Euro as their currency, and without doubt considered a High Income Country. The country became heavily indebted following the adoption of the Euro in 2000 because it was suddenly able to borrow money at a cheaper rate. However, due to the 2008 global financial crisis, Greece now has an unsustainable debt - i.e. it is in the same position as many low income countries as it cannot ever pay the full amount of debt back to its creditors.
The graph to the right shows the percentage of debt to GDP. This means that Greece currently (2015) owes almost double the total value of all the goods and services produced in the country. This has put enormous pressure on the rest of the Eurozone countries, and especially Germany, to do a 'bail out' - giving Greece interest free loans, and cancelling debt entirely, to help Greece recover. This is dealt with also in the section about the power of nation-states. Greece has been forced into a policy of austerity (spending very little money and taxing the population highly, with the aim of creating enough money to pay back the loans) which has been highly unpopular; the result was a change of government in January 2015 which has insisted on a reduction of the debt it must pay. This is an ongoing political and economic story that will take years to be completed. |
Source: http://commons.wikimedia.org/wiki/File:Greece_public_debt_1999-2010.svg
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