18 August 2011

Luxembourg residents - why don't you know that you are millions of dollars in debt?

...perhaps because you are not.  Either way, you would expect Foreign Policy to have editors who understood public finance before reporting such dire news.

The article in question, by Eric Pape, is either a weak attempt at journalism or a weaker attempt at humor.  The punch line is that Luxembourg is rotten, some sort of scam, because while is has among the highest GDP per capita, it has achieved this by accruing astonishingly high debt:

In the dark heart of Europe lies a nation rotten to the core. Renowned as a secret banking haven where North Korean leader Kim Jong Il allegedly squirreled away billions of dollars, its economy is tied to the whims of capricious global money markets. The country's per capita external debt is 84 times that of the debt-ridden United States (some $3.76 million for each man, woman, and child). 
Not only does this terrible debt loom beneath the fraudulent prosperity of Luxembourg , but the apparently smug Luxembourgeois are, ironically, unaware of this 'abyss' in spite of the sophisticated airs they affect.  What fools!

'Looking Over the Cliff'

But Pape's numbers do not add up.  Indeed, how can the external debt be so high when the public debt, according to the CIA Factbook, stands at just 15.2% of GDP, making the Grand Duchy the 119th most indebted nation in the world?  The discrepancy is explained by a comment made in the online edition of the magazine, posted by 'DEMGAR':
To be clear on the "External debt" issue, this number includes ALL debt issued in Luxembourg, not just government debt. Because Lux acts something like a flag of convenience for a lot of multi-national corporations, this number as compared to pop or GDP is nonsense. Companies like Apple and Amazon have their European HQ there, and companies like Arcelor Mittal and Skype have their global HQ there. Just because Apple (hypothetically) issues 1bln in EUR debt using the Lux markets, doesn't mean that the citizens of Lux have any obligation to pay it back at all. No more than US citizens have an obligation to pay back the debt of GM or Bank of America for example... Oh wait! HA! Well, I don't see Lux making that same folly.
That last dig about the US government was a bit cruel, I think.  But I can hardly hold it against Demgar if one of the most prestigious American journals should publish an article, whether humorous or sincere, based on such a serious and easily corrected error.

Looking Over The Cliff, from The Century Magazine, November 1883  --  Winslow Homer, 

wood engraving on paper
Smithsonian American Art MuseumThe Ray Austrian Collection

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