In short: Government Bonds Yields Curve.
Lets have a look at some examples right now and how that recently changed.
Lets start with a really strong and healthy economy like Germany. AAA rated by all rating agencies.
Yes, there is a little bit of a bump in the 1 year maturities. But given that the interest rate is actually negative (meaning investors are paying the German state to keep their money save, rather than charging interest), and the outlook is slightly improving, this is a clear indication that nobody is betting on this economy to fail anytime soon.
So how about the United States? AA+ rated by Standard & Poor, AAA by Moody’s and Fitch.
6 moths ago the markets were skeptical, but things look overwhelmingly healthy now that trade wars with China look like they came to an end. People still charge the US government interest to lend them money.
France currently AA rated by Standard & Poor and Fitch. AA2 by Moody’s, outlook positive.
like Germany, expected to have a few bumpy months ahead, but doing well. Better than the US in fact with a negative interest rate of -0.5%
Okay, I am cherry picking strong economies. So lets look at another major European player not known for doing so well. Like Spain. Only A rated, but outlook positive.
Now look at that, doing very well indeed!
Now lets compare this with the United Kingdom, still an AA rated country, though the outlook is negative
Interest rates are 1% over what other European nations like Spain or France have to pay, 2% over Germany.
Yield curve is inverted at least in the short term and not looking too good in the 30+ yrs long term either.
See what I mean?
And just because the UK news tries to make the economy of Italy and Greece look doomed, here is how they stack up.
Outlook, certainly more positive and healthy than that of the UK.
Some news outlets spin this as the US being against a joint EU military cooperation.
In reality, the US doesn’t want to see its arms manufacturers excluded from supplying any potential EU defence pact and threads to exclude European manufacturers from US contracts.
I found the perfect example to explain the difference between “GDP per capita” and “GDP per capita, PPP”.
Denmark vs Germany
We all know that Denmark has some of the highest salaries in the EU. But, as everybody who ever been there will be able to tell you, living there is also really expensive.
Within the EU: Luxembourg, Denmark and Ireland have some of the highest salaries. But what does that actually buy you? This is what PPP (Purchasing Power Parity) tries to answer.
But first, let me go one step back and quickly point out the obvious. Comparing the GDP (Gross Domestic Product) as a total over nations, especially with very different population numbers, isn’t going to be that useful in most of the cases. data source
The obvious solution is “GDP per Capita”, where one simply divide the GDP of a nation by the amount of people living there. This gives a very different picture indeed. data source
That doesn’t necessarily translates directly to salaries, but gives a very good example of what people there earn. It also does not say anything about how well that wealth is distribute between poor and rich, this is another topic for another day.
But have a look how far apart Denmark with a GDP per capita of $56k is from Germany with $44k.
But Denmark isn’t part of the EuroZone and, as mentioned, living there is noticeably more expensive.
What purchasing power parity does, is to look at how expensive some products are compared in $ USD to find out how much that money actually buys you. So what do you think, Germans or the Danish, who will get more for their salary? data source
Despite a 20% difference in salary, Germany and Denmark are almost identical.
So if you want to save a lot of money, Luxembourg and Ireland look a lot more attractive.
Money isn’t everything.
Despite that, Denmark and Germany usually ranks as one of the best places to live in the world. Typically ahead of both Luxembourg and Ireland.
See ONI Quality of Nationality Index
So what does that tell you?
If the accumulation of money is more important to you than the quality of life, you need to look at how much the cost of living is and not just the size of your pay-cheque.
Happiness isn’t about money or how expensive life is. It is a question of what you get for it. Not enough will guarantee misery, true. But after a certain threshold other factors start to become more important. Things like personal safety, a clean environment and being surrounded by other happy people is much more important than how big the balance on your current account is at the end of the month.
UK, Kantar Public poll:
European Union Membership Referendum
Remain: 55% (+1)
Leave: 45% (-1)
+/- vs. 4-8 April
— Europe Elects (@EuropeElects) April 25, 2019