13 December 2011 Last updated at 06:00

Top economists reveal their graphs of 2011

Some of the world's top economists share their insights into the year's extraordinary financial developments, particularly in the eurozone, by choosing a graph which helps explain events so far and what lies ahead. The graphs and commentary form part of BBC Newsnight's review of the economic year.

Interest rates on 10 year government bonds chart (Source Global Macro Monitor)

"For a long time the perception was that the creation of the euro meant sovereign risk was effectively the same across all countries. That of course proved to be wrong. The Lehman's crisis and financial meltdown that followed affected the deficits and debt levels of different countries in different ways. Interestingly it is much the same countries now with very high yields as it was pre-euro, suggesting little has changed fundamentally in a decade." VICKY PRYCE, SENIOR MANAGING DIRECTOR FTI CONSULTING

Bank of England Financial Stability Report chart (Source: Bank of England Financial Stability Report)

"This shows the Bank of England's estimate of what the market thinks is the likelihood of sovereign defaults in selected countries in the next five years. Prior to the crisis the market did not see any sizeable difference between these countries despite very different levels of public and private sector debt. The estimated chance of a default increased sharply for many in the aftermath of Lehman's demise in late 2008 but these increases have been dwarfed by those since early 2010." CARL EMMERSON, DEPUTY DIRECTOR OF INSTITUTE FOR FISCAL STUDIES

Italian government bond yields graph (Source: Bank of Italy)

"Italian debt yields have risen to unsustainable levels. Recognising this, the markets could overnight refuse to roll over Italy’s maturing debt at any price. Italy would be forced to default. No Italian banks could survive the write-down on their Italian public debt holdings, and the sovereign could not bail them out. Banks in many other countries would be compromised because of direct exposure and interbank exposures to Italian institutions. A generalised, global financial crisis would follow, far worse than after Lehman's failure." RICHARD PORTES, PROFESSOR OF ECONOMICS AT LONDON BUSINESS SCHOOL

Bank of England Inflation Report chart (Source: Bank of England Inflation Report)

"This Bank of England Inflation Report shows real income levels and consumption levels are way off their pre-crisis peaks. Households are trying to reduce debt, incomes are stagnant, and we are losing jobs in a weak labour market. Fiscal austerity alone cannot be effective in this environment. You have to have growth and the litmus test of government policy should be job creation." GEORGE MAGNUS, SENIOR ECONOMIC ADVISER AT UBS

"There is something very unusual happening. The British private sector, like the US private sector, is paying down debts, or increasing savings, despite historically low - near zero interest rates. This goes against everything we were taught at university, it goes against everything that the text books say, as ordinarily this should be a time to borrow money." RICHARD KOO, CHIEF ECONOMIST AT THE NOMURA RESEARCH INSTITUTE

Private sector debt in the UK chart (Source: Office for National Statistics)

"This is the chart that struck me most forcibly, both for what it tells us about the debts of the private sector, in particular the private finance sector; but also because of what the Treasury chose not to tell us: that the public debt to GDP ratio is tiny compared to private sector debt to GDP ratio." ANN PETTIFOR, DIRECTOR OF PRIME ECONOMICS

"Since the formation of the eurozone, the cost of producing one unit of output in Germany has barely risen. By contrast, unit labour costs in southern Europe and Ireland have increased by around 40%, causing these economies to lose competitiveness. This is a flaw in the single currency which cannot be put right by bailouts or debt write-offs." ROGER BOOTLE, MANAGING DIRECTOR CAPITAL ECONOMICS

Financial chart (Source: From Financial Crash to Debt Crisis by Carmen M Reinhart and Kenneth S Rogoff - American Economic Review August 2011)

"The blue line is global average of public debt relative to GDP. The yellow bars denote the percent of countries in a state of default or restructuring on external debt. The dark pink bars that sometimes rise above the percent of countries in default or restructuring denotes countries with inflation over 20%. The chart suggests that if the historical pattern is followed, there will be soon a wave of sovereign defaults. Needless to say, we appear to be on the cusp of such an event in the eurozone and central Europe, and possibly some countries elsewhere." KENNETH ROGOFF, FORMER CHIEF ECONOMIST AT THE IMF

Bloomberg financial chart (Source: Bloomberg)

"I selected the FRA OIS spread to illustrate the credit crunch is happening already. The graph shows that it costs a full 1% more for a bank to borrow for three months in the wholesale markets than for a bank to borrow overnight at a rate linked to the ECB. This is up from a 0.2% extra cost in the summer, pre-crisis. But even at this higher interest rate, many banks cannot find anyone willing to lend to them - the interbank funding market is frozen." LOUISE COOPER, MARKETS ANALYST AT BGC PARTNERS

Implications of UK gilt yields for potential growth chart (Source: Bank of England)

"This chart shows us what the 10-year index-linked gilts yield (on UK government bonds) predicts for the growth rate of the UK over the subsequent 10 years. We can see in the middle of the chart the blue line dropping sharply into 1998. When that first happened, people assumed it was some "distortion". We can now interpret it as an indicator that the UK could not grow as fast. The message of the chart is that UK GDP will struggle to grow more than about 1% per year, on average, over the next decade." ANDREW LILICO, DIRECTOR OF EUROPE ECONOMICS

Economic data chart (Source: Bruegel calculations based on DG ECFIN and Eurostat)

"When Economic and Monetary Union (EMU) was launched, we knew that the economic performance of the member countries had been very different in the previous two decades. The EMU architects assumed that once there was no possibility of future devaluations, all countries would recognise that they had to march to the beat of the German band. This chart shows that assumption could not have been more wrong, and the southern Europeans in particular allowed their competitiveness to decline with predictable consequences for trade. These divergences are at the heart of the intractable problems of the eurozone today." SIR HOWARD DAVIES, FORMER DIRECTOR OF THE LSE

In Pictures

Top economists reveal their graphs of 2011

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