Interesting article in the FT today. Some European nations (France, Italy & Spain) sound like they have a genuine fiscal ticking time bomb. https://www.ft.com/content/9c3c1ec8-9ccf-46bb-977d-e877dcf564e6#comment…
| +40 | SpaceX IPO - what are your thoughts | 9 | 5m |
| +28 | Should I use Claude or chatgpt? | 15 | 6h |
| +21 | Funny Things to Say to Interns | 7 | 9h |
| +17 | How did you meet your significant other/partner? | 13 | 22h |
| +17 | London's future as a financial centre | 18 | 1d |
| The Great Debate | 9 | 10h | |
| +7 | E ink/electronic notepads | 4 | 23h |
| +6 | Stay Sharp All Day With Best Modvigil 200 MG Tablet | 0 | 19h |
| +6 | Test post will be deleted automatically. | 11 | 1d |
| +5 | get a model before you model | 3 | 2d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Every single European nation is on track to massively reduce migration too. I do wonder who will be footing the pension and healthcare bills once the cheap labour supply is turned off and they skyrocket alongside the horrific demographic transition Europe is about to accelerate into.
Can’t even borrow more really.
This isn't even news. France (especially), Italy, Spain, and to some extent the UK and Germany have been too generous to pensioners and we are reaching a point in the demographic cycle of these countries won't be able to afford it (too many pensioners / not enough workers). Japan is the example that is ahead in the cycle, and it's not going well for them (yen is basically worth less than toilet paper, debt is 200%+ of GDP).
France is just a stupid situation, because they are the Western European country with the highest birth rate (still negative, but barely). But their state pensions are way too generous. Retire at 62 and at 50% of your salary every month until you die! On top of any private pension pot investment you may have made. This is obviously not sustainable. The issue here is not really presidents and governance, they have all tried to increase the retirement age but that was always faced with basically revolution in the French streets. However, the populace cannot understand that if the cash runs dry... no pensions will be left at all. Plus the fact that the French will now likely vote as a president in 2027 someone anti-immigration, the French treasury is basically cooked and anyone lending money to France (via their treasuries / OAT) is basically an investment retard of the highest order.
Italy is kind of the reverse problem, where governments of all political parties have basically been (and still are) extremely retarded. Note that Italy's debt is basically already massive. They have changed the law to tighten the retirement requirements (like age etc.) with a sweeping reform, which initially sounded great. They did make a lot of progress in 2022/23. Until the Americans elected their own senile retard in 2024 (after ousting another senile retard), and so Italy, for political reasons, decided to reduce taxes and be much stricter on immigration. So all the progress done since 2022 has basically disappeared: the debt-to-GDP ratio which in 2022/23 was equivalent to pre-Covid times (which was already shit), is now well above.
Spain is frankly the only success story at the moment. They have a very capable government under Sanchez (probably the first capable government since Adolfo Suarez, and that was a long time ago). The Spanish economy has basically been booming since 2018/19 and grew at a faster pace than the U.S. in most years since then. It has been a mix of pushing further services in the economy (banking, tech), increase in infrastructure to support tourism, increase in minimum wages, and successful housing reforms. Here it looks promising, and actually Spain might be an example of how to reverse the doom loop; for those willing to learn (hum, looking at you, the French...).
But don't get it wrong, in all of the West, the U.S. is actually the most cooked when it comes to debt and I am not sure there are many years left until a default à-la-Nixon happens. Trump and Biden have both been extremely damaging to the treasury.
Why is the U.S. the most cooked? Our GDP growth recently is starting to de-lever us and rates will be coming down. We can also just print money and inflate the rest of the world if we have to, who are highly reliant on us. We are the world economy. UK or Greece or France can go under and everyone shrugs, if the U.S. goes under the whole world does. We are one third of the entire globe’s GDP… and much of the rest of the world’s GDP relies on selling into our markets. Our military also mogs the rest of the world, we could just cut our military expenses and let Europe defend itself from Russia, in which case it, not us, is cooked.
GDP growth means absolutely nothing if it's levered to the t-ts on debt. The U.S. deficit has reached 7% and is nearing $2 trillion dollars, most of it owned by foreign private investors. I think the UK is at or around 5% and Germany less than 3%. The change in debt-to-GDP between 2019 and 2025 is 20 percentage points in the U.S. against 15 pp in the UK and 5 pp in Germany. All this means that the U.S. has had to borrow more to grow less. Not great right...
Similarly, on a per-capita basis, the U.S. has debt-per-capita of $100k with a GDP-per-capita of $80k; while the U.K. has a debt-per-capita of $55k with a GDP-per-capita of $60k. Hence, the debt-to-GDP-per-capita in the U.S. is above 1 while under 1 in the UK. So essentially Europeans are wealthier than Americans, simply because most of the U.S. wealth is a product of more and more debt.
There is no wonder why the USD is losing so much value against the peers such as GBP or CHF (JPY is another story since they are even more cooked than the U.S. debt-wise). But frankly I wouldn't expect a better analysis from a 1st year analyst.
British boi mad bc y’all are now a rounding error minor power.. maybe you shouldn’t have given up all your colonies
Ok maybe we do owe trillions of dollars mostly to other countries. Worst comes to worse if we couldn’t pay it without being squeezed we could simply:
My preferred alternative: decline to pay the debt. Ie “Sorry China and UK, we can’t afford to pay you back your money, so by this decree we are no longer going to pay you the trillions we owe you. We will pay back everyone else going forward though, especially with our healthier financial profile now that we no longer owe you.”
Now you may whine that would never work, it would be a default, or creditworthiness would tank and we’d go bankrupt. Wrong, that’s what would happen if the U.S. were a company, or the U.K.. No one would try to collect collateral because our military mogs the entire world’s, combined. And people would continue to lend us money if we wanted by our word because tbh we are the super power, and it would still be a better bet than some completely crooked countries like Russia or China. It’s simply a matter of our honor to pay the debts we owe, but if willing to compromise that (we largely are, look at our politics). We can have our cake and eat it too.
Everyday this site ratifies my pod’s decision to never hire out of the sellside
Ah yes. Printing money to infinity always ends well. Please look at 1920s Germany or even 3rd century Rome. They were respectively the biggest armies of their time, and printed their currencies to oblivion. Result: they couldn't even maintain their armies because the currency was too low. The exact same happened with Britain just after WW2. Please read Ray Dalio...
To play devil's advocate to this, expectations for future growth in the U.S. are significantly higher than actual growth in the last 5-10 years because of the current Administration's actions - I believe your analysis is impeded by a lagging effect that doesn't really account for future growth expectations.
Europe can't even afford AC lol no, they can't afford their pensions. Neither can most of the US, the defined benefit model is a sham.
Optio alias eligendi qui est fugit corporis tempore. Accusantium ut libero est. Dolor ut omnis in illo saepe. Non dolorem inventore distinctio voluptate nam rerum omnis dicta. Aut excepturi dolorem ut aut. Quia excepturi blanditiis rerum.
Incidunt aspernatur repellendus sit vel consectetur nulla voluptatem odio. Totam itaque corrupti accusantium adipisci. Inventore cupiditate et alias et sed. Id rerum id exercitationem fugit nostrum et. Voluptatem dolore rerum suscipit modi et quo tenetur.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...