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Greek debt load may get heavier, euro zone study says

Posted on February 21st, 2012 at 11:23 by John Sinteur in category: News -- Write a comment

[Quote]:

Greece will need additional relief if it is to cut its debts to 120 percent of GDP by 2020 and if it doesn’t follow through on structural reforms and other measures, its debt could hit 160 percent by 2020, a confidential analysis conducted by the IMF, European Central Bank and European Commission shows.

The baseline scenario in the 9-page report, obtained exclusively by Reuters, is that Greece will cut its debts to 129 percent of GDP by 2020, well above the 120 percent target.

“The results point to a need for additional debt relief from the official or private sectors to bring the debt trajectory down,” said the report, which is being discussed by euro zone finance ministers at a meeting in Brussels on Monday to decide on a second financing program for Greece.

The beatings austerity will continue until morale the economy improves.

  1. What I have not seen is a real focus on credible plans to improve the economy, which in the final analysis, is the solution to the problem.

  2. [Quote:]

    In addition, Greece undertook to transfer its debt-servicing payments into a blocked account one quarter in advance. It also promised to enact legislation giving priority to debt servicing over other government spending “over the next two months” and to enshrine that principle in its constitution “as soon as possible,” Mr. Juncker said.

    I can’t imagine that that’s going to go over well with the Greeks.

  3. Everyone makes out that these debt ratios are catastrophic. The USA, the UK and Japan maintain higher debt ratios with very little grumbling from the “markets”, probably because they are too big to push to default without breaking the game.

    Within most large economies, regions that are backward or do not “pay their way” are carried as a burden without too much complaint by the rest of the country. Sometimes these regions turn around (e.g. in Canada the example of Alberta or Newfoundland and Labrador). Can Europe pull this off?

  4. Uh, Sue, the U.S. national debt is around 80% of GDP I believe?

  5. Wikipedia: “Official figures state that as of July 2011 the British national debt amounted to £940.1 billion, or 61.4% of total GDP.[2] By January 2012 this figure had grown to £1,003.9 billion, or 64.2% of total GDP”

    US figures vary depending on whether you look at public or gross national debt, but are around 80% or 100% respectively.

    Neither the US nor the UK is anywhere near the 173% of GDP that Greece faces.

    And it’s not just about the raw %GDP number–in the end it’s about ability to repay. The U.S. economy is far more likely to grow to support its debt than the Greek economy is.

  6. Actually US Dept-to-GP >100%

  7. GP= GDP

  8. Can Europe pull this off?

    Technical answer: sure, no problem. Greece is at most 4% of the EU economy. Peanuts.

    The right question is, do the want to?

  9. priority to debt servicing

    All that money that is now part of the aid package is, once released, making a quick u-turn in athens, right back into the coffers of the big banks, as “debt service”. Nobody in greece is being helped with a single cent or drachme.

  10. Yeah, OK, gross debt is 101.8%. That’s “around 100%”, I’d argue.

  11. @John @#9: Money is fungible, right? So money they don’t have to pay to creditors because of the aid is money the Greek gov’t doesn’t have to raise in taxes or can spend on something else. I imagine your point is that it doesn’t help the unemployed get jobs or retirees to pay rent (etc.), and I get that, but to say that nobody in Greece is being helped at all seems inaccurate.

    I suppose in the end it comes down to the question whether you think it would help the Greeks if they left the Eurozone, as that would be the end result of not having the aid package. It’s pretty unclear to me, and not even clear to me that anyone can truly do that calculation accurately ahead of time.

    Just a few days ago there were op-eds saying that it’s all just a big stalling game to put enough of a firewall around Italy (& Portugal & Ireland…) so they won’t go down the drain when the EU finally cuts Greece loose.

    Time will tell.

  12. It’s pretty unclear to me as well, but Greece has been fucked over by the banks, their own government, en themselves the last decade.

    You can’t even do an Argentina on them, since their economy is too fucked. Argentina had some growth potential, while in Greece everything there had going for it has been taken over by other EU countries. They’re even an importer of olive oil right now.

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