Economics 27/04/2010: Greece & Ireland - tied by the risk of contagion

As the Greek, Portuguese, Italian and Irish bonds are melting in the markets' gaze at the countries fundamentals, one quick reference number is worth repeating. Per Chapter 1 of the latest Global Financial Stability Report from the IMF (linked here), the overall risk of contagion from a systemic crisis in one Euro area country to another (as measured by the percentage point contribution to total distress probability) for Greece was:

Contagion from Greece to:
October 2008-March 2009

• Portugal = 9.8%
  
• Italy = 9.9%
  
• Ireland = 12.5% (highest of all Euro area countries)
  
• Spain = 9.0% (in line with the Euro area total)
  
• Euro area as a whole = 8.8%

October 2009-February 2010

• Portugal = 23.6% (in line with the Euro area total) - up 13.8 pps
  
• Italy = 24.2% - up 14.3pps
  
• Ireland = 31.3% (highest of all Euro area countries) - up 18.8 pps
  
• Spain = 23.9% (in line with the Euro area total) - up 14.9 pps
  
• Euro area as a whole = 21.4% - up 12.6 pps
  

So spot the odd one here. As the crisis evolved, despite our Government's talk about 'Ireland turning the corner' and 'doing the right thing', our economy became actually closer and closer linked to Greece. More so than any other member of the PIIGS club. Some achievement that is...

Now, spot the similarity in responses to the crisis in Greece (here) and Ireland (here) and tell me - are we really that much better off in terms of macro fundamentals than Greece, especially given that Greek policymakers are at the very least not held hostage to a Social Partnership in which the likes of Tasc-informed Unions have a direct say?