Saturday, June 23, 2012

Average Debt Maturity and the Euro Crisis

Layna Mosley on average debt maturity across the continent (h/t Henry Farrell):

The United Kingdom's Debt Management Office recently reported that the average maturity of its debt was a high 14.5 years as of March 2012, up from 13.5 years in March 2011 and 13.1 years in 2010. That same year, Portugal's average was 5.8 years, Germany's was 5.9, Belgium's was 6.5, the Netherlands' was 7, France's was 7.1, and Italy's was 7.2. And many of the peripheral European countries had increased their average maturity significantly during the 2000s, issuing longer-term bonds to replace maturing shorter-term debt. This strategy was facilitated by investors' confidence that, as members of the eurozone, these countries' assets were relatively safe. In 2000, Portugal's average maturity was 4.6 years and Italy's was 5.7 years. (Most peripheral countries' average maturities reached their highs in 2008, before falling again.) Indeed, recent calls for eurobonds are an attempt to recapture some of the EMU bonus that accrued to peripheral nations in the 2000s; eurobonds would pool risk across participating nations, resulting in lower rates for peripheral nations but higher ones for core EU members, such as Germany.

Growth Pact but No Stability

As I predicted, Frau Merkel has given France and the south a bone to chew on--€130 billion in stimulus money--while remaining firm on her refusal to shore up Spanish banks without some oversight mechanism. It's a tough position, but I can'say it's an unreasonable one, given the irresponsible lending by Spanish banks in the past (abetted, of course, by northern banks). Potential lenders are unlikely to be impressed, so Spanish and Italian borrowing costs will continue to rise, and the euro will move closer to the brink, until a new deal can be struck.