Wry & Dry

Greece is the word. Again.

Greece's future in the eurozone again looks shaky

It's been a while since this massively debt-ridden south eastern European country made the headlines.  It was all hush, hush.  No-one was going to bell the cat.  Especially with Europe still reeling from the decision of the Brits to shove off.

And with significant French, German and Dutch elections later this year (see last weeks' W&D) the last thing Euro-philes want is the Greek debt problem to re-emerge.  

But like a bad drachma, it keeps on coming back.   Populist European parties have made it clear that payments to Greece amount to 'an unfair bailout from hard-working [insert name of donor country's peoples] to less deserving Greeks.' 

What's caused the re-emergence of the problem?

Impervious to (or perhaps unaware of the concept of) political reality, the boffins at the International Monetary Fund (IMF) have released a forecast saying that Greece's debt problem was effectively insolvable.  The IMF has warned Greece’s debts are on an “explosive” path despite years of attempted austerity and economic reforms.

Greece’s “public debt remains highly unsustainable, despite generous official relief already provided by its European partners,” the IMF said.

Even if the country successfully implements all of its planned financial and economic reforms - which has been a struggle so far - its debt is projected to fall from 179% of GDP a year ago to 160% of GDP by 2030 “but become explosive thereafter”.

Greece cannot be expected to grow out of its debt problem, even with full implementation of reforms.” 

Greeces debt

(GFN = Gross Financing Needs)

Is there an upcoming deadline?

You betcha.  In July Greece must repay seven billion euros to its creditors.  But Greece doesn't have the cash.  Someone will have to lend them more money... 

Image result for cartoon greek debt

What now?

The simple alternatives, as W&D sees it, are:

  1. massive debt forgiveness by lenders (political suicide for the Germans)
  2. further Greek austerity measures (political suicide for the Greeks)
  3. somehow fudge something and kick the can further down the road (likely)
  4. admit what should have been admitted six years ago (unlikely)

Item four is for Greece to leave the euro, have all of its debt forgiven and have a vastly devalued currency.