Greek Debt

[jhiker]

A simple question:

I'm no economist but....

If Greece's debt is running higher than it's GDP how can it possibly pay any of it back?

[factor-fiction]

If it at least paid the interest that would help

[Old_Geezer]

By improving its economy and raising its GDP ?

[chakka35]

It can't and won't. Greece will be the first country to leave the eurozone, the first crack in what was always a flawed system.

[jhiker]

Agreed - there's no way it can fail to default. And the debt problem has been compounded by wholesale tax evasion and successive governments 'cooking the books' the hide the true extent of the problem.

[Kayless]

It's like earning 20k and owing 40k, not good but should be repayable with prudence.

[Khandro]

The whole social and economic fabric of the country is corrupt, everything runs by bribery, kick-backs and downright extortion, - read Taki, in the Spectaror for details! I find it hard to imagine how the austerity measures can ever be effective. Answer: Default.

[Khandro]

Also; "The recession in Greece is about to surpass the three-year mark, and hopes for a recovery are dwindling, according to Georgios Provopoulos, governor of Greece's central bank.The latest banking trend has Provopoulos nervous for the future of his people. Expressing their fear and uncertainty, many Greeks have been removing 100% of their savings from nearby banks, due to unemployment and the threat of increased taxes." Which doesn't exactly help matters.

[DTCwordfan]

Its not only the Greeks - look at our neighbours, Ireland

http://www.bbc.co.uk/news/business-13366011

[New Judge]

It may be a bit like owing £40k whilst earning £20k but for one minor detail, kayless. Your analogy needs to be modified by adding that the £40k debt is also increasing annually by about £10k. With the best will in the world (because there is no prudence), the debt will simply increase with time and the cost of servicing the debt will quickly become unsustainable. That’s what’s happened to Greece and that’s what will happen to a number of other Eurozone nations.

The Euro was largely responsible for the Greeks’ plight because it enabled the nation to borrow far more than it would have been able to had it retained the Drachma. The Euro has also compounded the problem by shackling nations such as Greece to a currency of far greater value than their economy can sustain.

The Euro was a flawed project from its inception which would have been bad enough on its own. But the basic flaw was compounded by allowing countries to “cook the books” thus enabling them to join the single currency when they were not really eligible to do so. Germany’s latest idea to “save” the currency involves them effectively colonising the southern nations by economic means. This is undemocratic and will lead to considerable unrest, and in any case is not a viable long term solution. The currency needs to be reformed, or better still abandoned before too much more damage is done.

[DTCwordfan]

This is also an interesting graphic to play with - combining sovereign debt and banking debt - and why the US needs an answer - look how much they owe the UK! Frightening.

The once not included is China and I would like to have seen Belgium in there too.

http://www.bbc.co.uk/news/business-15748696

[beegeebee]

Just as a by the way-- The only country within the E.U. which meets the original criteria for joining the Euro is, Germany. The French joined on a bit of 'sleight of hand' by taking over the pension funds of the state employed workerd and guaranteeing to pay pensions from taxation! B.

[jake-the-peg]

Our debt was 250% of our GDP just after the war

http://runningofthebu...10536f30035970c-800wi


As Kayless says it's not a good place to be but if it's a short term condition it can be reduced.

The problem in Greece's case was that there was no real prospect of that being reduced


Italy has much more prospect of growth which is why Italy is rated AA- as opposed to Greece being rated CCC

http://en.wikipedia.o...e_outlook.22.2FAa2.29

[jomifl]

Quite simply Greece has more workers being paid out of taxation than people paying taxes.

[Khandro]

It's even worse than that; the country has no economic base which can be developed, when did you last buy a product, other than feta cheese and olive oil (not by any means the best). They export raisins apparently, probably because their grapes are not good enough to make decent wine from. Their main income came from tourism, but that has been decimated over the last few years due to higher costs - brought about by, guess what? - joining the Eurozone !

[New Judge]

Yes, quite right, khandro.

There are a number of countries using the Euro whose main export is tourism and who have seen that industry slaughtered because of the strength of the Euro. I have been travelling to Grrece a number of times each year for many years. Strangely, a few months ago I found a restaurant bill from 1998 (just prior to the abolition of the Drachma). It shows details of a meal for eight people and the total cost was just over 36,000 Drachma. I recall the final exchange rate for the Drachma was about 520 to the pound, making the total a little under seventy quid.


Last summer I had a similar meal in the same restaurant, but for just two people. The cost was 65 Euros – a tad under £60. So, from £8.50 a head to £30 a head in 13 years, an annual inflation rate of about 12%. (In fact, inflation in Greece – at least as far as the tourist is concerned – has been fairly low in the past four or five years. Most of the increases came about in the early years of the Euro).

It is little wonder that countries such as Greece are in such trouble. It is quite true that their fiscal management is appalling, but they managed in the past by running a cheap currency which attracted spend from foreigners. They cannot do that now.

[EDDIE51]

New Judge , how do you view Italy with regard to financial management?
I have relatives from Italy and they say the Mafia still have a huge influence. Every business from the smallest market stall to multi nationals has to pay its 'protection money' , the 'mob' controls politicians / police and the rest from top to bottom. The Mafia will not take to austerity any better than the Greeks will.
I do not see Italy getting itself out of this mess either !

[New Judge]

Don’t know too much about Italy, Eddie.

I have to say that any nation that elects Silvio Berlusconi as its Prime Minister on and off during the last 17 years must be viewed with some suspicion. The difficulty that Greece certainly has and that Italy, Spain and Portugal have to a lesser degree is that they cannot convince lenders that they stand a good chance that they will get their cash back. Alone among the “PIIGS” Ireland has managed to quell those fears to a degree by a programme of severe public spending cuts and increased taxes. Greece has no chance of doing so whilst it uses the Euro and its only realistic course of action is to go skint and revert to the Drachma. Italy needs to choose whether it is going the Irish way or the Greek way.