Over at Reason.com this afternoon, I have a new column on the Greek debt crisis. Last year we looked at the numbers on the blog and came to the conclusion that no matter what happens, Greece is going to default. With a new Greek bailout on the table, we update the numbers but come to the same conclusion:
The target is to get Greek debt down to just 120.5 percent of GDP by 2020. But a confidential 10-page report prepared for European finance ministers that was leaked on Monday suggests that the best-case scenario is closer to 130 percent of GDP by the end of the decade. Furthermore, the report suggested that if the bailout deal is not upheld on the Greek side, debt could rise to the 180 percent of debt-to-GDP range. To put this in perspective, Greece should be at something more like 60 or 70 percent of debt to GDP to be a stable European nation. [...]
The second bailout is also based on overly rosy estimates of economic growth for Greece. Where the Greek economy has seen negative GDP growth of 7 percent recently and is projected to have no growth in 2012 or 2013, the target goal of 120.5 percent of GDP by 2020 assumes economic growth of 2.3 percent in 2014 and 2.0 percent in 2015. But growth from where?
Read the whole commentary here.
If you want to start making a list of reasons why Greece will default here is a starter:
- It took over a year for Greece to start mandatory public sector layoffs because of constant protests and demands from the Greek citizenry that they retain their paychecks with salaries three times the private sector and no requirement to actually show up for the job.
- Greece consumes more than it produces—partly because its people are busy consuming and not working, and partly because it doesn't produce that much period. It is a tourist based economy that can't generate rapid growth needed to eventually draw in the revenues needed to pay their debts after this second bailout goes through (if it goes through).
- The Greek penchant for tax evasion isn't just going to disappear overnight.
- For Greece to really have a future the nation needs to take a collective pay cut (probably somewhere between 25% and 50%), but a Trojan horse is more likely to appear on their shores than this happening willingly. It would be much simplier to make this happen by getting Greece out of the Euro and going back to the drachma—but it'll take a default for the Euro to let Greece go. One way or the other, this is all inevitable.
For even more see these two interviews from earlier this week on the Greek debt crisis.
Monday on GBTV's Real News:
Tuesday on RT's The Aloyna Show: