Today comes the latest in a long list of euphemisms for a Greek debt default, this one courtesy of Eurogroup head and Luxembourg PM Jean-Claude Juncker:
While it's unclear how many of Europe's leaders are in agreement with Juncker, at least some of the Eurozone's grownups have begun to publicly acknowledge what the market has been communicating for awhile, which is that maintaining the current Greek debt program is hopeless. John Mauldin spells out the inescapable arithmetic:
The question now becomes how much appetite is there in Greece for any additional cuts and the selling off of state assets to pay back the foreign banks (primarily French and German) which lent Greece money? And are the Greeks really willing to put up 'collateral' (e.g, Mykonos?) in exchange for any additional financial assistance from Germany?
Continue reading the full article at SeekingAlpha here.
“If all these conditions are fulfilled, we can discuss the question of reprofiling,” Juncker told reporters late yesterday after chairing a meeting of euro-area finance chiefs in Brussels. “It’s not reprofiling or nothing. It’s measures, measures and measures, and then maybe reprofiling.”
Source: Bloomberg
While it's unclear how many of Europe's leaders are in agreement with Juncker, at least some of the Eurozone's grownups have begun to publicly acknowledge what the market has been communicating for awhile, which is that maintaining the current Greek debt program is hopeless. John Mauldin spells out the inescapable arithmetic:
(Greek) GDP at -4.5% in 2010 and still likely to be -3.0% in 2011 (Source: IMF). If your economy slows down by 10%, then your debt-to-GDP ratio rises by 11% without any new debt. And Greece is being asked to further reduce its deficit by what is in effect 15% of GDP, while taking on no more debt. Within two years Greece will have a debt-to-GDP ratio of 160%.
No country save Britain...has ever recovered from a debt-to-GDP ratio of over 150% without a default. None.
And the reason is simple arithmetic. Even a nominal interest rate of 6% means that it takes 10% of your national income just to pay the interest. Not 10% of tax revenues, mind you; 10% of your total domestic production. That is a huge burden on any country. It sucks up half your tax revenues (or more), leaving not enough to pay for ordinary government services like police, defense, education, pensions, health care, etc.
Greece runs a massive trade deficit with the rest of Europe, which just makes the problems worse. Unemployment in Greece is now 15% and rising.The details of Greece's default (aka 'reprofiling') appear to involve some type of maturity extension in exchange for an acceleration of Greek government cuts and 50 billion euros of privatization, which translates into selling about a fifth of the property that the Greek state owns.
The question now becomes how much appetite is there in Greece for any additional cuts and the selling off of state assets to pay back the foreign banks (primarily French and German) which lent Greece money? And are the Greeks really willing to put up 'collateral' (e.g, Mykonos?) in exchange for any additional financial assistance from Germany?
Continue reading the full article at SeekingAlpha here.
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