Which Country Will Default First? The Race is On

Of the world's six largest economies, three currently have budget and public debt positions that if allowed to fester will push those nations into bankruptcy (the seventh largest, Italy, also has a budget and debt position that is highly vulnerable, but its problems appear chronic rather than acute). Given the proclivities of modern politicians for delaying pain and avoiding problems, it is likely that festering is just what those positions will do. So which major country, the United States, Japan or Britain, will default first on its foreign debt?

The other three of the six top economies, Germany, China and France, appear to have fewer problems but are not out of the woods entirely. Germany has substantial public debt because of the costs involved in integrating the former East Germany, but those costs are now mostly past and the current government is highly disciplined – thus Germany is now the most stable major economy. France is less disciplined; its debt level is similar to that of Germany but its current budget deficit is much higher, at around 8% of Gross Domestic Product (GDP) in 2009, according to the Economist forecasting panel. However, its problems pale in comparison to those of the deficit-ridden trio. China has huge amounts of hidden debt in its banking system, which could well collapse, but its direct public debt is small, as is its budget deficit, so it is unlikely to enter formal default
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