Top 12 Countries Most Likely To Go Belly Up

Risk analysis firm Maplecroft just released its new fiscal risk index ranking of 163 countries. Europe trumps all other regions with 11 out of twelve courtiers rated as “extreme risk.” However, quite surprisingly, only one PIIGS country–Italy which takes the top spot–is in the top 12.

The others include many big economies in Europe - Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), United Kingdom (10), Finland (11) and Greece (12). Japan at No. 9 is the only other country not in Europe within the highest risk category (See map below).
Aging Demographic
While high national debt and public spending are two common denominators, the study finds it is the aging demographic that puts these countries at extreme fiscal risk. An aging population will place increasing pressure on public expenditure such as pension and health care, while a shrinking working-age population means less productivity and less tax revenues to support public spending and debt payments.
High Dependency Ratio
Aging population also leads to high dependency ratio, or the number of people 65 and older to every 100 people of traditional working ages. For example, according to Maplecroft, that ratio in France is 1 to 47 (i.e. 47%), Germany at 59%, Italy with 62% and Japan at the very top with 74%. The ratio in UK is currently 25%, and is forecast to rise to 38% by 2050.

Low Senior Labor Participation Rate

Another problem within Europe is that it has a low labor participation rate in the 65+ age bracket. In fact, the labor market participation of age 65+ amongst the ‘extreme risk’ nations ranges from 1.4% in France, 7.71% in UK, to 11.7% in Sweden, vs. a 28% average across all countries ranked in the index.

U.S. – High Fiscal Risk
Although the United States is not ranked among the “extreme fiscal risk,” the country is nevertheless classified as “high risk”, along with Spain, also a member in PIIGS, Australia, Canada, and Russia.
Let’s take a look at the two metrics mentioned here.
The dependency ration in the U.S. is 22 in 2010, but is projected to climb rapidly to 35 in 2030, according to the U.S. Census Bureau, mainly due to baby boomers moving up into the 65+ age bracket. The ratio then will rise more slowly to 37 in 2050.
The labor participation for age 65 and over in the U.S. is at 17.5 according to data at Bureau of Labor Statistics (BLS). This is better than most of the European countries, but below the overall average of 28%.
Wave II To Include U.S.
Most people typically associate country’s fiscal risk to the government’s monetary and fiscal policies and Lehman Brothers has taught us that banking and housing crisis could push the entire world into the Great Recession. While these are definite risk factors, a highly productive labor force and relatively young population makeup tend to mean sustainable prosperity and better odds at climbing out of a hole.
The Maplecroft study concludes:

“…in high risk countries, it is increasingly likely that the private sector will be called upon to contribute in the form of pensions and private health care…. Without significant adjustments, such as raising taxes or reducing spending, countries risk going bankrupt.”

Meanwhile, the fact that U.S. dollar actually went down during this crisis in Libya and Egypt is very telling regarding the diminishing safe haven status of the dollar as well as the United States.

So, while widespread protests are still going on in Europe over pension age being raised and many austerity measures, amid the European sovereign debt crisis, the U.S. and other countries in the same “high fiscal risk” seem to be set for the wave II of this global fiscal chain of events.

Debt Car Pile Up: Europeans & IMF Bailout "Cook the Book" Greeks

Debt Car Pile Up:
The futility of increasing debt on the road to prosperity
by Joel Bowman
Reporting from Taipei, Taiwan...

Turns out a trillion euros just ain't what it used to be.

The moribund currency fell for a third straight session in overnight trading. The downward pressure has been almost unrelenting ever since Europe's anti-brain trust drove a $957 billion stake through the credibility of the world's major, alternative fiat currency (the greenback being, for the time being, the paper I.O.U. of choice).

After exhibiting an astounding - for the political class - degree of conviction and fiscal integrity in the face of the rioting Hellenes, European leaders caved like a cheep deck of cards over the weekend. The package promises $560 billion in new loans (debt) and $76 billion under an existing lending program (more debt). The International Monetary Fund plans to contribute up to an additional $321 billion (more debt).

Perhaps the most astounding aspect of the whole euro-crisis is that individuals occupying positions of influence still believe piling new debt upon old debt is akin to some kind of road to future prosperity. Surely the subprime meltdown - itself caused by layer upon layer of unserviceable debt - can't be that distant a memory for them. Apparently applicants for high office need to check the "goldfish" box when the memory aptitude question comes up.

And what kind of message do they think this conveys to the world's investors? A few Molotov cocktails and a rowdy bunch of ne'er-do-wells down tools for a few days and the continent's political backbone turns to Plasticine?

Unsurprisingly, some central banks may have already begun cutting purchases of euros. Stuart Thomson, of Ignis Asset Management in Glasgow, today told Bloomberg, "The ECB is on its way to quantitative easing, its reputation was damaged over the weekend, and the support it had been getting from central banks wasn't spotted this morning... Central banks are normally in supporting the euro but they haven't been seen today."

Of course, it takes more than merely the precipitous collapse of a 16- nation currency to dissuade the marching mobs. Behaving somewhat out of character, the Greeks aren't taking their portion of the handout lying down. Not by a long shot. This, from Reuters:

"Greek workers on Wednesday called a 24-hour general strike for May 20, the latest in a series of protests against planned pension cuts linked to an international 110-billion-euro ($139.7 billion) bailout for Greece."

This isn't over yet, fellow reckoners. Not by a long shot. (As we were writing these words, in fact, news that the leader of Spain's largest union will call a public sector strike was just coming across the wires.) We can't wait to see what happens when the Spaniards line up for their "fair share" of the increasingly worthless bailout goop...and the Italians...and the...well, you've read this list before...and it ends at Uncle Sam's doorstep.

Gold, meanwhile, rocketed to another all-time nominal high overnight. It's still a long way off its real, inflation-adjusted record - somewhere around the $2,300 per ounce mark - and we're not predicting an end to gold's secular bull market any time soon. The appeal of the "barbarous relic," as many are just coming to discover, is that, unlike inked paper supported by spineless politicians and back-patting vote- buyers, it does not owe anybody anything. It is no one else's liability. To the extent that you do not trust the political will to defend a paper currency, in other words, you ought to trust the yellow metal in your hand.

And now for today's column...

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