Tito's Blog

European Governments Cash Flows 2010-2011

All you need to know about European government debt in two pictures below from Nomura research:

Economist and FT on Private Deleverage vs Public Borrowing

Martin Wolf explains why extra government borrowing will be met by increased private (mostly corporate) savings, à-la Japanese lost decade. In general it makes a lot of sense, even though it makes two strong assumptions:

1. the somewhat paradoxical net flow of capital from developing to mature countries via reserve accumulation and currency manipulation will continue indefinitely
2. dollars and pounds will still be considered a safe heaven

On private corporation deleverage, The Economist has a good article on this week print edition (“Show us the money”) on increased cash generation by US and UK companies, due to lower investments.

Some Optimism On Italy’s Debt

After reading Citigroup Global Market Report “Sovereign Debt Problems in Advanced Industrial countries” and the BIS working paper “The future of public debt: prospects and implications (pdf)”, I feel a little better about Italy, mostly because we have a primary (i.e. before interests) budget surplus, we didn’t overspend in stimulus programs and age-related government spending has been in part already reformed (see image below).

Finally, if worse comes to worse, a primary budget surplus also means that Italy does not need to tap capital markets after a unilateral default on the debt mountain.