Willem Buiter, Citi Chief Economist, on Soverign Debt problems

Here are some snippets from an interview with Willem Buiter, chief economist for Citigroup, on the sorverign debt crisis. The video (below) of the full presentation is worth watching.


We are seeing what used to be emerging-market crisis in the advanced industrial countries.

There are a few exceptions, countries that are in reasonable financial shape, but they're few and far between. They're the usuals -- you know, the Scandinavians, the Nordics, sort of slightly boring, but solid, right? There is New Zealand and Australia. And that's it.

There are a couple of countries that think they're in good shape fiscally, but only are so in comparison to their awful neighbors. By historical or by absolute standards, they too are in bad shape. Canada, as an example, compared to the U.S., in fine shape. But by any other standard, any country who has 80 percent of GDP general government debt ratio, you know, should not be thumping its chest too vigorously. Likewise Germany. If Germany weren't in the euro area today, it wouldn't be able to get in, because it violates both the debt and the deficit criteria.

So today's best of breed, as they say in the thing, you know, would have only been a possible entry for the "ugliest dog in the world" contest only a couple of years ago. We really are in trouble.

The immediate crisis, of course, has struck Greece, and that's appropriate, because Greece is a class of its own as regards to awfulness of its fiscal financial situation. (Scattered laughter.) It has the second-highest -- possibly the highest, because we can't yet be completely sure about the data, but certainly the second-highest debt-to-GDP ratio, and a massive, recently revised up to 13.6 percent of GDP for 2009, general government deficit, much of which actually is structural.

The U.K. and the U.S. are in bad fiscal shape, and, in fact, they are -- the headline deficit numbers aren't that much smaller in the -- than in Greece. And in fact, the U.K., on the commission's projections, is like they have a higher deficit than Greece or Ireland next year.

But a lot of that is cyclical. In Greece, the cycle is only just beginning. We're expecting another six-(percent)-plus decline in GDP as the fiscal screws are tightened.

As for the United States, Buiter cautions about the risks of U.S. inaction on fiscal discipline in the next few years. He said:

"If, over the next two or three years, all that happens by way of fiscal tightening in the U.S. is the expiry of the Bush tax cuts on the upper quartile of the income distribution, then three years from now the U.S. will have lost its triple-A rating."




FULL INTERVIEW