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Comment by puredemo | Hacker News Reader

What countries are running surpluses?

Switzerland. It also introduced a "debt brake" in 2003 [1].

Seeing where we stand now this was quite a visionary step. Switzerland paid for it with slower growth etc. but is now one of the countries with the healthiest Budget (a feat especially considering Switzerland does not have any natural resources) and one of the few (besides Singapore and Norway I think) that is not in danger of losing its Triple-A ratings.

[1] http://en.wikipedia.org/wiki/Balanced_budget_amendment#Switz...

Thanks for the link. My first thought was that it would be a potential disaster like the inflexible and pro cyclical American balanced budget laws, but the Swiss law seems very reasonable """It states that each year, the budget must be in balance, adjusted for economic conditions. This adjustment is made by multiplying expenditures by a cyclical factor (the ratio of trend real GDP to expected real GDP), thus either allowing for deficits during recessions or forcing lawmakers to have surpluses during booms."""

Since US GDP is currently far below potential GDP that would seem to allow for a substantial fiscal stimulus right now but force the government to save when the economy is stronger again.

Unfortunately Switzerland didn't manage to dodge the bullet entirely.

Many people saw the Swiss Franc as a safe haven currency and massively bought them up, driving up the exchange rate. This caused Switzerland's exports to become uncompetitive which is also slowing what is a very export driven economy.

Oddly enough prices haven't really come down domestically either, but neither has unemployment risen that much (despite large layoffs in the financial services sector, particularly in their biggest banks, UBS and Credit Suisse).

Yes, in September this year the Swiss bank took the almost unprecedented step of announcing it would print currency at 'any amount' in order to maintain something like 1.2 with the Euro. Having a huge volume of money seeking safe haven in Swiss Francs has all sorts of destabilizing effects.

http://www.economist.com/blogs/dailychart/2011/05/europes_ec... > Debt > Budget Balance

Sweden and Estonia

I should note that Sweden has its own (floating) currency, making Estonia the only Euro-zone country running a surplus.

Italy is running a primary budget surplus, meaning it is reducing debt.

No, the primary surplus is before interest payments. After interest payments it runs a deficit, so it is still borrowing to pay the interest bill, so debt is increasing.

That's true in absolute numbers. But if a country is able to run a primary surplus over the long run, it means that the growth of its economy and its tax revenues is keeping up with the additional nominal debt. So the debt grows in absolute numbers but not relative to GDP. That's why the primary balance is generally considered a good measure for debt sustainability.

Still, you are right that they may not be reducing debt, but at least they are keeping it stable.

But Italy has had barely any growth for 30 years. Negative in the past 10.

Yes, real GDP growth has been anemic, but as most of the interest they pay is not inflation adjusted, you need to use nominal GDP - I think.

Anyway, I think Italy does have a great industrial base, so they have something to work with if they can get some reforms done. Not so in Greece.

But maybe I'm just whistling in the dark here. If interest rates spike and the ECB stops buying debt all talk of longer term sustainability will be moot.

These numbers are not long term sustainable I dont think, a financial bubble and loose credit meant that banks could fund governments in increasing their debts in boom and recession, but now they have seen that the downside of that is bailing out the banks, and ever increasing leverage.

The amount of government debt the non bank private sector wants to hold now is maybe half the existing stock. Higher real interest rates might increase that level somewhat by encouraging saving, as might mandated savings. The alternatives are inflation or default, or trying to float a giant government hedge fund to take on the leverage, the EFSF plan.

You could well be right. But I'm still somewhat hopeful because the EU and the eurozone as a whole is less indebted than the US or Japan. So the problem becomes one of sharing the burden, which is the rational thing to do considering the disastrous consequences of an Italian default.

I don't think the the EFSF will play much of a role in that. Ultimately the ECB will have to keep Italy's (and later Frances) bond yields at a sustainable level. They will have to do what the Fed and the Bank of England have been busy doing all along: monetize the debt. Trouble is, they're not legally permitted to do that, but I think the Germans are pragmatic enough to let it happen. The question is when.

Every country that issues government bonds has some amount of debt. For some countries (most notably Russia) the total debt issued is a tiny fraction of their GDP.

edit: The surplus/deficit is the first derivative of the debt. Whether a country runs a surplus or a deficit changes from year to year.

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