In light of the ongoing economic meltdown in Greece, the Economist has an interesting article that quantifies debt sustainability of countries. It uses the simple reasoning that if interest rate paid on debt is more than the economy’s growth rate (represented by GDP) - the country might be in trouble.
Excerpt Feb 13th economist: So which countries are in the biggest trouble? The ability of a government to honour its debt depends on a number of factors, in particular the size of the debt burden relative to GDP, the interest rate paid on that debt relative to the economy’s growth rate and the size of the government’s primary budget balance—the surplus, or deficit, before interest costs
http://www.economist.com/businessfinance/displaystory.cfm?story_id=15498265
Tags: economics
