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The recent financial crisis and recession have been a worldwide occurrence. The
events in the United States since 2008 have garnered most of the headlines because
the U. S. has the world's largest economy and national debt, but the reality is that
many countries in Europe are in worse financial shape and continue to deteriorate.
There are various ways to rank indebtedness,
such as debt per capita and deficit or debt as a More from Investopedia:
function of gross domestic product (GDP). This
ranking is based on cumulative debt as a • 7 Currency Blunders You
percentage of GDP and is limited to an analysis Could Cash In On
of the 25 largest economies. It is further limited • 6 Things You Didn't Know
to "external" debt, which is the portion of the About The U.S. Budget Deficit
national debt that is owed only to foreign • 7 Smart Steps Every New
creditors. The source for the debt and GDP Homeowner Should Take
amounts is the Central Intelligence Agency World
Factbook most recent numbers from mid to late 2009.
After recording budget surpluses in the prior two years, the economy reversed
course in 2009 and contracted 7%. This eroded tax revenues and sent the annual
deficit to a record 14.3% of GDP. The European Union set a target for Ireland to reduce
that figure to 3% by 2014, but the International Monetary Fund has indicated that the
deadline will be missed. Moody's has subsequently lowered its bond rating.
The Netherlands joined the eurozone with a hard guilder a decade ago, but its
current debt would likely disqualify it for membership.
Like many other countries, Britain bought time during the financial crisis by
implementing massive fiscal stimulus and forcing the public to fund losses in the private
sector. Without the restoration of fiscal credibility, there is a significant danger of a
government bond sell-off, pound weakness and a flight of capital.
The root problem has been low productivity and virtually no economic growth in the
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Top 6 most indebted countries (and why) - Yahoo! Finance 10-08-20 8:30 AM
past few years. Portugal ranks last in GDP growth among countries that adopted the
euro as a common currency. Demand for goods and services has stalled, along with
innovation and business momentum. In addition, Portugal's exports have been undercut
by cheap labor in countries such as China. (For related reading, see The Economics Of
Labor Mobility.)
By comparison, China and India have ratios of 7% and 20% respectively. Their
economic growth rates have also exceeded the western nations over the past few
years, thereby keeping their debt ratios relatively low. If the western nations don't
implement policies to reduce their debts, they run the risk of jeopardizing future
economic growth and prosperity.
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