Debt, GDP & Nation Branding
Every nation is a brand. Its flags are its logos and its cultures are its personalities. Maintained by the behavior of governments and its population, each one has a different quality of life, language, history, environment, and temperament that collectively promise a unique experience. A nation’s brand is big and dynamic, but it only works when a functioning economy can support it. In light of the current Eurozone debt crisis, BAV wanted to better understand how debt affects a nation’s brand.
To do so, we compared two nations, Germany and Italy. Germany currently has the strongest economy in the Eurozone with a debt-to-GDP ratio of 74.7% as of 2014. Italy is the third strongest economy, with a debt-to-GDP ratio of 132.4% as of 2014. These figures mean that for a decade, Germany’s government spending has been less than its GDP and Italy’s government spending has consistently exceeded it.
Imagine spending more than you can afford for 10 years by borrowing large sums of money without increasing your income fast enough to match it. Unsurprisingly, when the time comes to repay debts, you will not be able to afford it. This is the case now with Italy’s recession – despite its powerful economic position, Italy’s overspending had caused economic turmoil.
Germany, on the other hand, has increased its annual government spending without going over its GDP. As a result, Germany’s economy is healthy and has grown steadily for the past decade.
So how does this affect each nation’s brand? Since a nation’s economy affects every aspect of daily life, when there is a recession, peoples’ experiences in the nation are less satisfying. Businesses are hurt, jobs are cut, and spending goes down, forcing people to live less comfortably. Over a long time period, perception of the nation changes – from within and from abroad. Although Italy is working to recover, the long period of economic hardship has affected it as a brand.
Going through the BAV data, we were able to see how several countries perceive Italy and Germany with regard to Esteem – in this context, how well a brand lives up to its promise. Brands with higher esteem are seen as more reliable by consumers and are more likely to be used repeatedly. Since we are talking about nations, this chart could imply how likely other nations would be to invest in Italy or Germany if given a choice between the two. Germany’s strong economy, stability, and well-managed government spending make it the more highly regarded option. Translate this into action and it means that foreigners will feel safer investing their lives and business in Germany than they will in Italy.
Not only that, but when comparing strength to stature, Germany is perceived by many nations to have a better combination of both, making it more recognizable as a leadership brand (top right quadrant). Italy, on the other hand, is seen as more of a niche brand (top left quadrant) – perceived as being a very specific in what it has to offer. This means that foreigners see Italy as a truly unique nation, even though it may be unpredictable.
Debt is likely a massive barrier Italy has to overcome to raise its brand esteem and become a leader. After recovering from its long recession and successfully balancing its government spending, it is likely that Italy would contend with Germany as one of the strongest economies in the Eurozone.