STUPID Countries Burden Economy

By Yoon Ja-young
Staff Reporter

Concern over debt woes in some southern European countries are spreading to other nations. Though Korea has a relatively healthy fiscal condition, economists point out that problems there could have an effect here, as the country relies considerably on exports to Europe.

The first of the fiscal problems included the ``PIGS'' countries, or Portugal, Italy, Greece and Spain, but this spread to ``PIIGS,'' adding Ireland. Now it is the so-called ``STUPID'' economies ― Spain, Turkey, (the) United Kingdom, Portugal, Italy and Dubai.

Veritas, a weekly magazine published by Japan's Nikkei, reported that these countries are suffering both fiscal and current account deficits. Consequently, their credit default swap (CDS) premiums, which reflect sovereign risk, have been rising, and half of them have had their credit ratings outlook downgraded.

Spain, for instance, had CDS premiums rise to nearly 160 basis points, and global credit rating agency S&P lowered its outlook on the country's sovereign rating to negative from stable.

Turkey had CDS premiums breach 200, with analysts warning that the country could face bigger trouble since it's not a member of the EU.

Italy's state debt stands at around 115 percent of GDP, and its fiscal deficit is 5.4 percent. This is the highest debt ratio in Europe following Greece.

Alarms are ringing across the United Kingdom, which is suffering from a deficit as well as a recession. Its CDS premium more than doubled during the past six months, reaching 92. State debt reached 70 percent of GDP, and its fiscal deficit hovers at around 12 percent of GDP. S&P warned that it could lower the country's rating if it fails to deal with the fiscal deficit.

``The euro zone countries mainly resorted to fiscal spending expansion to boost their economies as they can't use monetary policies. The countries that were especially weak in fiscal health are seeing rapid deterioration following the expansion of government spending and tax income cuts amid the recession,'' said Kim Eun-mi, an analyst at Prudential Investment & Securities.

She said the fiscally troubled countries aren't likely to solve the problems on their own as neither borrowing from overseas nor achieving fiscal and current account surpluses will be easy. Some of them are planning to cut jobs and services in the public sector to improve fiscal health, but this has turned into a ``political issue,'' according to Kim.

Korea, meanwhile, is relatively safe, according to the government and analysts. ``Asian countries are relatively healthy fiscally, and are showing solid economic recoveries,'' Kim said.

Samsung Economic Research Institute's Kim Deuk-kab agreed. ``Korea has enough foreign exchange reserves and a current account surplus to withstand the shock,'' he said.

However, the troubles in Europe could delay recovery of the continent, which has boosted its economy through exports. ``The EU is Korea's second major export market following China, but recovery in demand isn't likely in some countries as they adopt super tight policies,'' Kim said.

chizpizza@koreatimes.co.kr

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