Ratings agencies are pushing for European governments to adopt more stringent fiscal plans, but no one seems to be seriously biting as the threat of real sovereign crisis continues to loom.According to Edward Hugh at Fistful of Euros, the problem isn’t just the new spending states like the UK, France, and Spain engaged in during the financial crisis. The problem is the off balance sheet pension programs that make current debt levels look like mere introductions to Europe’s debt Bible.
Greece, which has stomached the most ridicule thus far, is a perfect example having a staggering 875% of its GDP in debt if you include pensions. That’s nearly 8 times what the government acknowledges now.
But the problem isn’t just in the continent’s weakest link. France has 549% of its GDP in debt if you include pensions and Germany has 418%.
While national accounting practices may make these numbers easy to hide, sovereign debt and CDS markets won’t remain as oblivious to these problems if appetite for sovereign debt plummets.