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Debt over GDP is higher thant 125 % so basically, at 3-3.5% you need around 4% growth with balanced budget (which needs more contractionary spending.. whcih is a feedback impossibility). Let's say Greece needs a 5% growth to pay down debt at 3%... is it really possible? Or are we asking the impossible?

Isn't it better just to slash debt at around 70-80% GDP with haircut interest rates to 1-2% and ask Greece to grow at normal 3%?

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon May 23rd, 2011 at 07:53:52 AM EST
[ Parent ]
I doubt any analyst could figure this out. You have to remember that although Greek debt is now around 144% debt to GDP, the economy has massively contracted (4.5%-5% for at least two years) and so now we're measuring their ability to pay against a crippled economy. The rise in debt to GDP from 115% when this crisis started to 144% is now because of an increase in public expenditures. Greece has actually reduced expenditures.

To what degree might Greece's economy grow in a world in which it's public spending doesn't give the economy a steroid bounce? No one knows. The debt to GDP might as well be 14400% if Greece does not have a way to bounce back strong.

by Upstate NY on Mon May 23rd, 2011 at 10:35:58 AM EST
[ Parent ]
That is true as far as it goes, but also beside the point.

The reason - the only reason - that Greek sovereign debt is unsustainable is that Greek foreign debt is unsustainable, because Greece has a persistent, cycle-averaged foreign deficit in excess of any realistic growth rate for a European economy.

Currency crisis, not debt crisis.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 23rd, 2011 at 09:07:15 PM EST
[ Parent ]
And because the ECB and the Eurozone treat intra-Eurozone debt as foreign debt.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 24th, 2011 at 01:42:17 AM EST
[ Parent ]


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