Opiniones de S&P

In many European countries, 2006 has proved to be more benign in terms of economic growth and fiscal outcomes than had been expected at the beginning of the past year. For 2007, Standard & Poor's expects that the growth dynamics will remain robust, with a weighted growth rate across the 41 rated sovereign of 2.7%, after 3.2% in 2006, which itself was well short of the 2000 record of 4.1% (see table 1). As in previous years, the relatively less prosperous Central and East European (CEE) sovereigns lead the way. The most dynamic economy in 2007 will be Latvia, with GDP growth of 8.9%, with neighboring Estonia coming in second (for official names and credit ratings, see table 1). Slovakia will enter the top three for the first time in 2007, underlining its turnaround since 2000, when it was the most sluggish economy of rated Europe. Only three (small) Eurozone members make it into the top 20, Ireland at 10 (5.3%), Luxembourg at 18 (4.3%) and new member Slovenia at 19 (4.2%).

Table 1

European Sovereigns Real GDP Growth
(%)	Long-term foreign currency rating	2000	Rank		2006	Rank		2007	Rank
Latvia (Republic of)	A-	6.9	7		11.0	2		8.9	1
Estonia (Republic of)	A	7.9	5		11.0	1		7.5	2
Slovak Republic	A	0.7	40		7.5	5		7.2	3
Lithuania (Republic of)	A	4.1	23		7.9	4		7.0	4
Georgia (Government of)	B+	2.1	39		8.0	3		6.4	5
Bulgaria (Republic of)	BBB+	5.4	13		6.0	9		6.2	6
Romania (Republic of)	BBB-	2.2	38		7.5	5		6.0	7
The Russian Federation (Russia)	BBB+	10.0	1		7.0	7		6.0	7
Serbia (Republic of)	BB-	5.2	15		5.9	10		5.6	9
Ireland (Republic of)	AAA	9.2	2		5.4	13		5.3	10
Turkey (Republic of)	BB-	7.4	6		5.3	14		5.2	11
Ukraine	BB-	5.9	11		6.3	8		5.0	12
Poland (Republic of)	BBB+	4.0	25		5.2	15		4.7	13
Czech Republic	A-	3.9	27		5.8	11		4.7	14
Croatia (Republic of)	BBB	2.9	36		4.5	20		4.5	15
Macedonia (Republic of)	BB+	4.6	20		4.0	24		4.5	15
Isle of Man	AAA	8.1	4		4.3	21		4.3	17
Luxembourg (Grand Duchy of)	AAA	8.5	3		5.5	12		4.3	18
Slovenia (Republic of)	AA	4.6	19		4.8	16		4.2	19
Montenegro (Republic of)	BB	N/A	N/A		4.6	19		4.0	20
Cyprus (Republic of)	A	5.1	17		3.8	26		3.8	21
Spain (Kingdom of)	AAA	5.0	18		3.7	27		3.4	22
Hellenic Republic (Greece)	A	4.5	21		4.0	23		3.4	23
Sweden (Kingdom of)	AAA	4.3	22		4.1	22		3.3	24
Andorra (Principality of)	AA	5.3	14		3.2	28		3.0	25
Netherlands (State of The)	AAA	3.5	30		3.0	31		2.9	26
Finland (Republic of)	AAA	5.1	16		4.6	17		2.9	27
Austria (Republic of)	AAA	3.4	32		3.2	29		2.7	28
United Kingdom	AAA	3.8	28		2.6	35		2.5	29
Liechtenstein (Principality of)	AAA	3.3	33		3.1	30		2.5	30
Hungary (Republic of)	BBB+	6.0	10		4.0	25		2.4	31
Belgium (Kingdom of)	AA+	3.9	26		2.7	33		2.3	32
Denmark (Kingdom of)	AAA	6.2	9		2.7	33		2.2	33
Malta (Republic of)	A	6.4	8		2.3	37		2.1	34
Norway (Kingdom of)	AAA	3.0	35		2.1	39		2.0	35
France (Republic of)	AAA	4.1	24		2.3	38		1.9	36
Swiss Confederation (Switzerland	AAA	2.7	37		2.9	32		1.9	36
Germany (Federal Republic of)	AAA	3.2	34		2.5	36		1.8	38
Portugal (Republic of)	AA-	3.4	31		1.0	41		1.2	39
Italy (Republic of)	A+	3.6	29		1.8	40		1.2	40
Iceland (Republic of)	A+	5.7	12		4.6	18		(0.3)	41
Weighted Average		4.1			3.2			2.7
N/A--Not applicable.

Only one sovereign is projected to suffer a recession next year: Iceland, where the economy is correcting following an unprecedented credit and investment boom. Iceland will thus take over the bottom position from Portugal, which occupied the space in 2006 with growth of around 1%. Iceland is also the sovereign where growth rates drops most compared to 2006 (by 4.9 percentage points), ahead of Estonia (3.5 points), Latvia (2.1 points), and Finland (1.7 points). Growth in 2007 is expected to accelerate only in three European economies: Macedonia, Bulgaria, and Portugal, although the latter remains firmly anchored near the bottom of the European growth league. Half of the bottom 10 in the growth league are Eurozone members, including the heavyweights France (at 36 with 1.9%), Germany (38 with 1.4%) and Italy (40 with 1.2%), which account for a combined 42% of GDP of rated European sovereigns (down from 46% in 2000).

When it comes to the question of what is fuelling the relatively robust growth experience in Europe, a credit boom plays a vital role in many countries. Domestic credit had risen to 114% of GDP in 2006, from 98% in 2000. This year the ratio is to climb further to 117% of GDP (see table 2). Indeed, European sovereigns make up seven of the top 10 places in the world in terms of depth of credit intermediation, led by Luxembourg, where the vast majority of credit is for clients outside the Grand Duchy, granted by Luxembourg-based subsidiaries of foreign banks. The contingent liability for the state in the event of a systemic banking crisis is therefore very limited. Iceland, Andorra (where the case is similar to Luxembourg), and Ireland all boast credit ratios in excess of 200% of GDP and are, together with Luxembourg, the top four not only in Europe but worldwide. Iceland's credit ratio has risen almost threefold since 2000, climbing the global ranking by 23 places. Other European sovereigns (Spain, Ireland, the Baltic and Balkan regions) have experienced a comparable or even faster rise in the global rankings. As a result, residential property prices have also reached unprecedented levels in many of the above-mentioned countries.

Table 2

European Sovereigns Domestic Credit
(% of GDP)	Long-term foreign currency rating	2000	Rank		2006	Rank		2007	Rank
Luxembourg	AAA	447.6	1		489.2	1		472.7	1
Iceland	A+	100.0	15		270.8	2		275.8	2
Andorra	AA	159.7	3		245.8	3		268.7	3
Ireland	AAA	106.0	12		191.0	4		213.9	4
Netherlands	AAA	141.0	4		184.6	5		189.9	5
Denmark	AAA	135.4	5		174.4	6		177.8	6
U.K.	AAA	132.7	6		171.2	7		177.5	7
Spain	AAA	88.7	17		156.5	9		174.1	8
Switzerland	AAA	161.0	2		169.2	8		171.8	9
Portugal	AA-	131.3	7		150.4	10		152.9	10
Liechtenstein	AAA	103.2	13		141.8	11		142.6	11
Norway	AAA	126.4	8		134.4	12		135.2	12
Sweden	AAA	96.5	16		126.7	13		130.9	13
Malta	A	107.1	11		119.6	14		120.5	14
Cyprus	A	113.0	10		117.6	15		117.6	15
Austria	AAA	101.7	14		115.7	16		116.3	16
Germany	AAA	118.6	9		111.7	17		113.0	17
Italy	A+	76.0	19		96.5	18		101.9	18
Greece	A	53.6	23		92.7	19		101.0	19
France	AAA	72.5	20		81.0	20		81.7	20
Latvia	A-	18.3	32		72.9	23		79.8	21
Finland	AAA	54.0	22		78.3	21		79.2	22
Estonia	A	24.2	30		70.9	24		77.1	23
Belgium	AA+	79.5	18		75.0	22		74.9	24
Croatia	BBB	38.8	26		70.5	25		74.2	25
Slovenia	AA	35.8	27		59.6	26		67.5	26
Bulgaria	BBB+	12.6	35		48.0	28		54.8	27
Hungary	BBB+	32.0	28		52.7	27		51.7	28
Ukraine	BB-	12.3	36		42.6	29		49.4	29
Lithuania	A	12.1	37		41.8	30		43.9	30
Czech Republic	A-	49.9	25		39.1	31		39.5	31
Slovak Republic	A	51.0	24		36.5	32		36.5	32
Russia	BBB+	14.4	34		30.5	33		36.3	33
Macedonia	BB+	18.1	33		29.3	34		33.0	34
Serbia	BB-	57.6	21		28.7	35		31.2	35
Turkey	BB-	23.3	31		26.8	38		30.6	36
Montenegro	BB	N/A	N/A		27.3	37		30.4	37
Romania	BBB-	9.3	38		25.1	39		29.8	38
Poland	BBB+	27.3	29		27.9	36		28.2	39
Georgia	B+	8.0	39		21.5	40		21.4	40
Isle of Man	AAA	N/A	N/A		N/A	N/A		N/A	N/A
Weighted Average		97.9			113.6			117.0
N/A--Not applicable.

In 2007 there will be 19 sovereigns in Europe where outstanding credit will surpass GDP, up from 17 in 2006. In 10 countries (Latvia, Bulgaria, Ukraine, Lithuania, Estonia, Romania, Iceland, Georgia, Russia, and Ireland) the ratio has doubled since 2000, with a more than threefold increase in the first three sovereigns. Although there are often good reasons why credit is growing fast, such as normalization from preceding financial repression and falling interest rates, it is also clear that this engine of growth will not be sustained beyond the turn of the current decade in most of the countries experiencing rapid credit growth. Other things being equal, it is fair to assume that the reduction in credit growth will lead to a deceleration of domestic demand and thus of economic activity. This is exactly the pattern of 2007, when credit growth will remain high but will slow down from the lofty levels of 2006.

The bottom 10 sovereigns in terms of financial intermediation are all in the CEE region, plus Turkey. Georgia's banking system is the most rudimentary of the European sample, with credit accounting for merely one-fifth of GDP. Poland, at 28%, stands out in the CEE region as it is currently the only country that is able to grow rapidly without a credit boom or worrisome external imbalances. The levels of bank credit in the Czech and Slovak republics also remain relatively modest, in part owing to previous problems in their banking systems, which have most likely led to less aggressive borrowing and lending behavior. In fact, in both cases the credit ratio in 2000 was more than 10 percentage points of GDP higher than in 2007. Apart from Serbia, where there were also financial sector problems to digest, Belgium and Germany are the only other sovereigns where the credit ratio in 2007 will be lower than that in 2000. Conversely, in 34 sovereigns, financial intermediation deepened.

Europe is well ahead the rest of the world in the speed with which its banking systems churn out credit to residents: the European sovereigns' average global ranking in 2007 will be 40, from 41 in 2006 and 48 in 2000. Between 2000 and 2007 the credit-to-GDP ratio will have risen by 19% in Europe compared with 12% globally (including Europe). In 2007, the credit ratio is to climb another 3.4% of GDP in Europe, compared with 1.3% globally.

Taken together, the (GDP-weighted) average current account balance among the 41 rated European sovereigns is still positive in 2007 (a surplus of 0.3% of GDP), almost unchanged from 2006 and only marginally higher than in 2000 (0.1% surplus). The positive balance is due to only 11 surplus countries, however, led by oil exporters Norway and Russia as well as by the financial and wealth management centers Switzerland and Luxembourg (which have large income balance surpluses). Certain economic heavyweights, such as Germany, plus the remaining Nordic countries (excluding Iceland) are also firmly expected to display current account surpluses in 2007 (see table 3).

Table 3

European Sovereigns Current Account Balance
(% of GDP)	Long-term foreign currency rating	2000	Rank		2006	Rank		2007	Rank
Norway	AAA	15.6	2		16.7	1		17.9	1
Switzerland	AAA	12.1	4		14.5	2		15.5	2
Luxembourg	AAA	13.7	3		10.5	3		11.5	3
Russia	BBB+	18.0	1		10.2	4		8.0	4
Netherlands	AAA	2.0	9		7.0	5		7.0	5
Sweden	AAA	2.7	8		5.9	6		5.7	6
Finland	AAA	7.4	5		5.5	7		5.0	7
Germany	AAA	(1.4)	14		4.2	8		4.5	8
Austria	AAA	(2.5)	17		3.0	9		2.5	9
Belgium	AA+	3.9	7		2.5	10		2.5	9
Denmark	AAA	1.6	10		1.9	11		1.7	11
Italy	A+	(0.6)	13		(1.5)	13		(1.0)	12
Slovenia	AA	(2.8)	20		(1.9)	14		(1.8)	13
France	AAA	1.4	11		(2.1)	15		(1.9)	14
Ukraine	BB-	4.7	6		(0.6)	12		(2.0)	15
Poland	BBB+	(6.0)	31		(2.1)	16		(2.3)	16
U.K.	AAA	(2.6)	18		(3.0)	17		(3.1)	17
Czech Republic	A-	(2.8)	19		(3.6)	19		(3.3)	18
Slovak Republic	A	(3.5)	22		(6.2)	22		(3.5)	19
Macedonia	BB+	(1.7)	15		(3.8)	20		(3.9)	20
Ireland	AAA	(0.4)	12		(3.0)	18		(4.0)	21
Cyprus	A	(5.2)	26		(5.3)	21		(4.9)	22
Hungary	BBB+	(8.5)	33		(7.1)	24		(5.5)	23
Estonia	A	(5.4)	27		(8.6)	29		(7.0)	24
Croatia	BBB	(2.5)	16		(7.2)	25		(7.0)	25
Turkey	BB-	(4.9)	25		(7.9)	26		(7.0)	25
Lithuania	A	(5.9)	29		(7.0)	23		(7.1)	27
Malta	A	(12.6)	37		(8.0)	27		(7.7)	28
Greece	A	(8.7)	34		(9.0)	31		(8.0)	29
Serbia	BB-	(4.9)	24		(8.8)	30		(8.7)	30
Montenegro	BB	N/A	N/A		(9.0)	33		(8.8)	31
Portugal	AA-	(10.9)	36		(9.0)	31		(9.0)	32
Spain	AAA	(3.4)	21		(8.4)	28		(9.3)	33
Romania	BBB-	(3.7)	23		(10.4)	34		(11.9)	34
Bulgaria	BBB+	(5.6)	28		(13.1)	36		(12.6)	35
Iceland	A+	(10.2)	35		(23.5)	38		(13.7)	36
Georgia	B+	(6.0)	30		(11.2)	35		(15.0)	37
Latvia	A-	(6.4)	32		(16.5)	37		(16.8)	38
Andorra	AA	N/A	N/A		N/A	N/A		N/A	N/A
Isle of Man	AAA	N/A	N/A		N/A	N/A		N/A	N/A
Liechtenstein	AAA	N/A	N/A		N/A	N/A		N/A	N/A
Weighted Average		0.1			0.3			0.3
N/A--Not applicable.

By contrast, there are six sovereigns with current account deficits likely to surpass 10% of GDP in 2007, led again, not coincidentally, by Latvia, which was the sovereign with the highest projected growth rate this year. Latvia is followed by Georgia, with a deficit of 15% (a deterioration of 4% of GDP compared with 2006), and Iceland with 14%, an improvement of 10% of GDP from the truly exceptional 2006, when largescale investments coincided with an unmitigated credit and consumption boom. Apart from Iceland and Ireland, the 20 sovereigns with the highest current account deficits are all located in Southern or Eastern Europe. As most of these countries receive sometimes sizable investment grants from the EU as well as significant foreign direct investment (FDI), the external vulnerabilities may not be as dramatic as the large external deficits might suggest.

Nevertheless, the deficits have now grown in almost all of the affected countries to dimensions that oblige more precarious financing through external borrowing, often short-term through the booming banking system. For example, among the largest five deficits, the 2007 net FDI coverage of the current account deficit ranges from 25% (Latvia) to 68% (Georgia). In contrast, in 2000, net FDI coverage ranged from 66% (Georgia), to 81% (Latvia), and 160% (Bulgaria). During all that time, Iceland has been a significant net investor abroad (3.5% of GDP in 2007), adding to the external financing needs.

Three Eurozone members, Greece, Portugal, and Spain, will once again clock up current account deficits near 10% of GDP in 2007. By the very nature of monetary union, these countries are insulated from traditional balance of payments crises, but the large external imbalances signal that the current path of development will most likely be unsustainable as these societies live considerably above their means. This is an especially disturbing situation for growth-laggard Portugal. Moreover, the example of Spain raises a wider question, namely whether certain European economies have become too dependent on credit, fuelling domestic demand and external deficits.

In 2007, there will be a mild relationship between the speed with which credit (as a share of GDP) is inflating and the current account balance, excluding the particular cases of Iceland and the large oil exporters Russia and Norway (see chart 1). Although the evidence is not completely conclusive, it is statistically significant at the 99% level. The regression line indicates that where the GDP-share of domestic credit remains unchanged in 2007, the current account would be broadly balanced. Conversely, every percentage point increase in the credit ratio will lead to a widening of the current account imbalance by 0.55 percentage points of GDP.

 Chart 1

Considering that credit expansion has also been identified as a statistically significant driver of real GDP growth in the sample, it is a realistic conclusion that, on average, European countries find it difficult to grow fast without breaking their inherent speed limit (potential growth) and blowing out the current account (see chart 2). For European sovereigns, growth in excess of 2% (well below the global average) coincides with current account deficits, which rise to around 5% of GDP if growth reaches 5%. It needs to be stressed that, especially in the non-oil exporting CEE sovereigns, current account deficits are something to be expected as their economies catch up to those of more developed EU members, but the continuous increase of the external imbalances and the progressive dependence on portfolio financing is still a growing concern. Even more worrisome, of course, are those sovereigns below the regression line where, for any given growth rate, current account imbalances rise beyond the regional norm. Portugal, Malta, Spain, Greece, Italy, Georgia, Hungary, Bulgaria, and Romania are in this unenviable position, but so is the U.K.

 Chart 2

The sustainability of public finances is a key rating consideration, and particularly so for sovereigns in (or aspiring) to monetary union, as EMU membership greatly reduces the policy flexibility to use alternative levers to address asymmetric shocks to a sovereign.

As every year, Norway, bolstered by oil revenues and its large financial assets accumulated in the Government Pension Fund (formerly known as the Government Petroleum Fund), boasts the largest surplus among European sovereigns, at 16% of GDP, followed by fellow oil exporter Russia, and by Andorra, which, like Bulgaria, has steadily moved up the list in recent years (see table 4). In total, 15 sovereigns will have a budget surplus in 2007, with Iceland dropping out of this list, to be replaced by The Netherlands. Iceland is the country falling the most places in the ranking, to 19 in 2007 from 3 in 2006. The bottom seven places are occupied by the same sovereigns as last year, with Hungary once more the bottom of the pile, although the gap between this sovereign and Portugal, Poland, and the Czech Republic is narrowing somewhat. The fastest climbers will be Malta and Andorra (both up six places), followed by the Isle of Man (up four places), and Germany, Serbia, and Turkey (each up three places). Conversely, other large sovereigns, such as France, the U.K., and Italy are treading water. Overall, the general government deficit remains at 0.9% of GDP in 2007, unchanged from 2006, but still well short of the outperforming year 2000 (0.5% deficit).

Table 4

European Sovereigns General Government Balances
(% of GDP)	Long-term foreign currency rating	2000	Rank		2006	Rank		2007	Rank
Norway	AAA	15.6	1		16.7	1		16.2	1
Russia	BBB+	3.1	7		7.0	2		5.6	2
Andorra	AA	(0.5)	17		1.9	9		3.2	3
Finland	AAA	7.1	2		2.9	5		2.7	4
Denmark	AAA	2.6	8		2.9	5		2.3	5
Bulgaria	BBB+	(1.0)	19		3.4	4		2.0	6
Liechtenstein	AAA	7.0	3		2.2	8		1.9	7
Sweden	AAA	2.4	10		1.8	10		1.4	8
Isle of Man	AAA	6.9	4		1.1	13		1.4	9
Ireland	AAA	4.4	6		2.3	7		1.2	10
Serbia	BB-	N/A	N/A		0.8	14		0.9	11
Spain	AAA	(0.9)	18		1.4	11		0.8	12
Switzerland	AAA	2.2	11		0.1	15		0.2	13
Estonia	A	(0.4)	16		1.4	11		0.2	14
Netherlands	AAA	2.0	12		(0.1)	16		0.0	15
Belgium	AA+	0.1	15		(0.3)	17		(0.3)	16
Turkey	BB-	(24.4)	39		(1.0)	20		(0.6)	17
Montenegro	BB	N/A	N/A		(0.8)	19		(0.6)	18
Iceland	A+	2.4	9		3.9	3		(0.6)	19
Macedonia	BB+	1.9	13		(0.6)	18		(0.6)	20
Luxembourg	AAA	6.0	5		(1.5)	23		(0.9)	21
Latvia	A-	(2.8)	28		(1.4)	22		(1.0)	22
Austria	AAA	(1.6)	23		(1.2)	21		(1.3)	23
Germany	AAA	(1.4)	21		(1.9)	27		(1.5)	24
Lithuania	A	(2.5)	27		(1.8)	26		(1.5)	24
Slovenia	AA	(3.8)	33		(1.6)	24		(1.6)	26
Cyprus	A	(2.3)	25		(2.1)	29		(1.8)	27
Malta	A	(6.4)	37		(2.8)	34		(2.1)	28
Ukraine	BB-	(1.1)	20		(2.4)	31		(2.2)	29
Croatia	BBB	(6.5)	38		(2.2)	30		(2.2)	30
Romania	BBB-	(4.0)	34		(2.0)	28		(2.5)	31
Georgia	B+	(3.5)	31		(1.7)	25		(2.6)	32
France	AAA	(1.4)	22		(2.7)	33		(2.7)	33
Greece	A	(4.1)	35		(2.6)	32		(2.8)	34
U.K.	AAA	1.8	14		(3.0)	35		(2.9)	35
Slovak Republic	A	(4.9)	36		(3.4)	36		(3.0)	36
Italy	A+	(2.0)	24		(3.4)	36		(3.3)	37
Czech Republic	A-	(3.7)	32		(3.8)	38		(3.9)	38
Poland	BBB+	(2.5)	26		(4.2)	39		(3.9)	38
Portugal	AA-	(3.2)	30		(4.8)	40		(4.1)	40
Hungary	BBB+	(3.0)	29		(9.8)	41		(6.8)	41
Weighted Average		(0.5)			(0.9)			(0.9)
N/A--Not applicable.

The burden of public debt servicing, measured as interest outlays as a share of general government revenues, is to decline to 6.2% in 2007, from 6.3% in the previous year (see table 5). In contrast, in 2000 the share of high-yielding pre-EMU public debt was much higher and the interest burden stood at 9.2%. In 2007, Turkey will once more be the country with the most onerous debt burden by far. Interest expenditures will account for almost one-quarter of all general government revenues. Although this ratio represents a slight drop from 2006, Turkey remains the only European sovereign in the global top 10 for this indicator. In Europe, Turkey is followed by Greece, Hungary, and Italy, with the latter two swapping places. Lower down the top 10, Germany and Poland will also trade places.

Table 5

European Sovereigns General Government Interest Payments
(% of revenues)	Long-term foreign currency rating	2000	Rank		2006	Rank		2007	Rank
Turkey	BB-	58.6	1		26.1	1		23.5	1
Greece	A	17.1	3		11.3	2		11.5	2
Hungary	BBB+	13.4	8		9.7	4		10.5	3
Italy	A+	14.5	6		10.1	3		10.2	4
Belgium	AA+	13.7	7		9.0	5		8.6	5
Malta	A	10.7	9		8.0	6		7.8	6
Cyprus	A	16.7	4		7.8	7		7.5	7
Portugal	AA-	7.5	16		6.9	8		7.1	8
Poland	BBB+	6.7	22		6.2	10		6.6	9
Germany	AAA	7.1	18		6.4	9		6.4	10
Austria	AAA	7.4	17		6.0	11		6.0	11
U.K.	AAA	7.0	19		5.7	14		5.9	12
Netherlands	AAA	7.9	14		5.8	13		5.8	13
France	AAA	6.3	23		5.4	15		5.5	14
Slovak Republic	A	8.5	12		6.0	11		5.5	14
Serbia	BB-	N/A	N/A		4.6	18		5.1	16
Croatia	BBB	4.3	31		5.1	16		4.9	17
Iceland	A+	7.5	15		4.9	17		4.8	18
Denmark	AAA	6.2	24		4.3	19		4.0	19
Spain	AAA	8.4	13		4.1	20		3.8	20
Switzerland	AAA	4.9	28		3.9	21		3.8	21
Czech Republic	A-	2.2	34		3.4	24		3.8	22
Romania	BBB-	15.5	5		3.5	23		3.3	23
Finland	AAA	5.1	26		3.4	25		3.3	24
Georgia	B+	20.9	2		3.6	22		3.2	25
Lithuania	A	4.9	27		2.9	27		3.0	26
Bulgaria	BBB+	10.3	10		3.1	26		2.8	27
Sweden	AAA	6.9	20		2.8	28		2.7	28
Macedonia	BB+	4.9	29		2.6	32		2.6	29
Norway	AAA	2.8	33		2.5	33		2.6	30
Slovenia	AA	4.6	30		2.7	29		2.6	31
Ireland	AAA	5.6	25		2.7	30		2.5	32
Isle of Man	AAA	0.7	37		2.3	35		2.1	33
Montenegro	BB	N/A	N/A		2.6	31		1.8	34
Andorra	AA	2.0	35		2.1	36		1.8	35
Latvia	A-	2.8	32		1.6	37		1.7	36
Ukraine	BB-	6.8	21		1.6	38		1.6	37
Russia	BBB+	10.3	11		2.3	34		1.6	37
Luxembourg	AAA	0.6	38		0.5	40		0.7	39
Estonia	A	0.9	36		0.5	39		0.5	40
Liechtenstein	AAA	0.0	39		0.0	41		0.0	41
Weighted Average		9.2			6.3			6.2
N/A--Not applicable.

Sovereigns with a very low interest burden tend to be very small ones, led by Liechtenstein, Estonia, and Luxembourg, where governments spend less than 1% of their revenues on servicing their debt. Liechtenstein is the only rated European sovereign that is completely debt-free. The interest ratio of Ukraine, and especially Russia, has plummeted since the onset of the current decade, as the debt stock has dwindled and financing has become much more affordable. In both cases, the relative weakening of the U.S. dollar, in which historically a large part of these sovereigns' external debt was denominated, has also helped to bring down servicing costs and will continue to do so in 2007. The interest burden of new EU members Bulgaria and Romania will continue to decline as well, although less spectacularly so than in the first half of the decade.

European governments take a relatively high share of taxes and other revenues, on average 43.7% of GDP in 2007, almost unchanged from the previous year (43.8%), but well below the 44.6% of 2000 (see table 6). Globally, six of the top 10 in the general government revenues/GDP ranking are European, namely the Scandinavian sovereigns, France, and Belgium. Sweden's government rakes in 56.7% of GDP in 2007, well short of the 58.1% in 2006, but still well ahead of the Nordic competition (Norway and Denmark) and France, the other sovereigns where more than one-half of national output is appropriated by the public sector. Belgium will surpass Finland for the first time in 2007, as the latter continues its strategy of gradual tax reductions. Among non-EU countries, the large share of government revenues stands out in Montenegro (placed at 9) and Croatia (12). Lithuania, Romania, and Slovakia are the EU members with the lowest revenue share, just slightly less than EU candidates Macedonia and Turkey, but ahead of Serbia, Georgia, and Andorra, with the latter two raising less than one-quarter of GDP in revenues.

Table 6

European Sovereigns General Government Revenues
(% of GDP)	Long-term foreign currency rating	2000	Rank		2006	Rank		2007	Rank
Norway	AAA	55.1	4		55.7	1		54.8	1
Denmark	AAA	56.7	2		53.4	3		53.1	2
Sweden	AAA	58.1	1		54.7	2		52.6	3
France	AAA	50.5	6		50.7	4		50.5	4
Belgium	AA+	49.6	8		49.4	6		49.2	5
Finland	AAA	56.2	3		49.6	5		48.9	6
Austria	AAA	49.8	7		47.6	7		47.2	7
Netherlands	AAA	46.1	13		46.9	8		46.7	8
Montenegro	BB	N/A	N/A		45.9	11		46.6	9
Greece	A	47.6	10		46.3	10		46.4	10
Italy	A+	43.6	16		45.5	12		45.9	11
Croatia	BBB	46.2	12		45.5	13		45.5	12
Slovenia	AA	44.3	15		45.3	14		45.0	13
Isle of Man	AAA	54.9	5		44.1	16		44.0	14
Iceland	A+	44.3	14		46.6	9		44.0	15
Germany	AAA	46.4	11		43.7	17		44.0	16
Hungary	BBB+	42.0	18		42.2	18		43.1	17
Malta	A	35.7	31		44.5	15		42.9	18
Portugal	AA-	40.2	19		42.1	20		42.2	19
Bulgaria	BBB+	38.7	22		42.1	19		42.2	20
Czech Republic	A-	38.5	23		41.5	21		41.0	21
Spain	AAA	38.1	25		40.3	23		40.1	22
Cyprus	A	32.7	35		39.4	25		39.5	23
Poland	BBB+	38.5	24		39.6	24		39.5	24
Luxembourg	AAA	43.5	17		40.5	22		39.2	25
Ukraine	BB-	33.4	34		39.1	26		39.1	26
U.K.	AAA	39.2	20		38.6	27		38.9	27
Latvia	A-	35.1	32		38.5	28		38.7	28
Estonia	A	37.9	26		38.0	30		38.1	29
Switzerland	AAA	39.0	21		38.1	29		37.9	30
Ireland	AAA	35.9	29		36.9	31		36.6	31
Russia	BBB+	36.9	27		36.2	32		36.2	32
Liechtenstein	AAA	34.0	33		34.5	35		34.4	33
Macedonia	BB+	36.2	28		35.1	34		33.9	34
Turkey	BB-	29.9	37		35.2	33		33.7	35
Slovak Republic	A	47.6	9		34.0	36		33.4	36
Romania	BBB-	31.2	36		30.7	38		30.8	37
Lithuania	A	35.7	30		31.4	37		29.3	38
Serbia	BB-	N/A	N/A		27.4	39		27.9	39
Georgia	B+	14.0	39		27.0	40		24.4	40
Andorra	AA	19.2	38		18.1	41		19.4	41
Weighted Average		44.6			43.8			43.7

In summary, public finances will witness a very small increase in fiscal flexibility in 2007, but in the light of the favorable growth environment, this performance can be considered as disappointing in many instances. The main direction in this field is therefore sideways, which is in line with the stable ratings outlook on all but three sovereigns in the region (Czech Republic, Montenegro, and Serbia).