Europe Union euro area some facts to counter deficit hysteria

As usual, once deficit hysteria hits, as it has this past week in Europe, a great deal of irrational and non factually based opinions get tossed about as if they were gospel as opposed to hysteria.

Now that Ireland has been run down the hunt has turned to Portugal and Spain.

But remember both of these countries belong to the Eurozone which is an economic powerhouse with a population of over 329 million people.(All the data that I will be citing comes from Eurostat and the European Central Bank, the official source of statistics for the European union as well as the Spanish Ministry of the Economy.)

 Unfortunately overall unemployment in Europe is still far too high . It is 10.1 %. or some 15.9 million people.

It is particularly a problem among young people under the age of 25. In 2009 the rates  according to Eurostat for this age demographic were as follows: Spain 37.8 %; Portugal 20 %; Greece 25.8 %; Ireland 24.4 %; France 23.5 %; Italy 25.3 %; Sweden 25.0 %; U.K. 19.1 %; Germany 10.4 %

Clearly there is a need for special stimulus and employment programs aimed at young workers in Europe. austerity worshipping at the alter of debt reduction won't do the job.

Countries like Germany are doing relatively well but Spain, Ireland, Portugal and Greece all suffer from excessive overall unemployment well beyond 10 %. Their rates as of fall 2010 are as follows: Spain 20 %; Ireland 14.1 %; Portugal 10.6 %; Greece 12.2 %.

In comparison Germany has 7.3 % unemployment.

If we add up all the gross government debt in the Euro area and compare it to the GDP of the Euro area we find that it is 79.2 % of the GDP. An elevated figure but very far from the disaster it is made out to be.The Spanish debt to GDP ratio for 2010 is 62.5 %  Its debt outstanding amounts to some 550 billion euros.

Also remember that is gross government debt. Net debt which subtracts out assets and is a more accurate measure of accounting is significantly less. A significant portion of this Euro area debt is held by non euro area residents including the British and the Swedes, some 42.4 % according to the data. The Spanish ratio of foreign debt holders of its debt is smaller than this.

The interest rate on ten year bonds is 3.3 % and the one year inter bank lending rate is 1.5 % The currency in circulation is 838.7 billion euros and the very broadly defined money stock M3 is 9474 billion euros with a euro area GDP that totals over 14 trillion U.S. dollars in purchasing power parity terms.

If the ECB simply did its job properly, it is perfectly feasible for it, in conjunction with the European financial stability facility, to temporarily support countries like Portugal and Spain and reverse bond market blackmail which is clearly not based on facts but on deficit hysteria.

Spain's total debt is far outweighed by the euro area GDP and its wealth of assets. Given the high unemployment of over 20 % in Spain,austerity is not a sensible policy option as opposed to European fiscal  stimulus and  quantitative easing. In the long run the results would be much better and considerable unnecessary hardship averted.