Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Why Record-High Stock Prices Mean You Should Buy More - 20th Nov 19
This Invisible Company Powers Almost the Entire Finance Industry - 20th Nov 19
Zig-Zagging Gold Is Not Necessarily Bearish Gold - 20th Nov 19
Legal Status of Cannabis Seeds in the UK - 20th Nov 19
The Next Gold Rush Could Be About To Happen Here - 20th Nov 19
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

Greece’s Debt Problem Has Reached a Dangerous Point

Interest-Rates / Eurozone Debt Crisis Dec 25, 2016 - 05:41 AM GMT

By: John_Mauldin

Interest-Rates

BY ALLISON FEDIRKA : Before the Italian banking crisis and referendum, before Brexit… there was Greece. Greece’s debt crisis was really the first public crack in the European Union’s armor and one that has yet to be repaired.

Readers who want to understand why anti-EU sentiment and nationalism have developed in many of these countries don’t have to look at migration or other controversial topics. Simply look at Greece and how it has fared after adopting the EU’s austerity terms.


The Greek experience with austerity-linked financial support from the EU has been painful and—making matters worse—rather ineffective. While Greece is on the periphery, its problems are hardwired into the entire EU, and those problems are spreading.

Greece’s current situation

When the Greek debt crisis broke in 2010, Athens turned to the EU for help. Assistance to Greece to this day has been contingent on Athens making domestically unpopular reforms. Nearly seven years, 13 austerity packages, and three bailouts (worth a running total of $366 billion) later, the Greek economy is still struggling.

The debt burden now registers at about 177 percent of GDP. Non-performing loans total $119 billion, accounting for 45 percent of the country’s loans. Unemployment is still around 23 percent, and about three-fourths of unemployed people have been jobless for at least a year.

The Greek government regularly finds itself in a catch-22. Either it carries out unpopular European Central Bank (ECB) reforms, or it tries to keep the economy running without full backing from the EU. The very institution Athens initially looked to for help is now seen as dubious and problematic.

Athens and Brussels at an impasse

The Eurogroup (the finance ministers of the 19 eurozone countries) recently met in Brussels and offered Greece some immediate short-term relief for its debt burden. The measures are supposed to facilitate debt repayments and forego an interest rate hike planned for next year.

If all goes to plan, these measures will reduce Greece’s debt burden by one-fifth by 2060. While this may be a practical timetable given the size of the debt, it is not the most realistic solution. A lot can happen in 43 years. The proposal also does not give Greece the debt relief it seeks for the immediate term.

Equally important is what didn’t happen at this meeting. Greece wanted the Eurogroup to sign off on a second review of the current bailout program. Athens and Brussels once again find themselves at an impasse over proposed reforms.

The Greek government wants to reintroduce collective bargaining and layoffs, as well as reduce the primary budget target to 2.5 percent of GDP in 2018. EU creditors are against the labor reforms and call for a budgetary surplus target of 3.5 percent in 2018. Yet again, a standoff.

A successful bailout review would have opened two additional means through which Athens could access more credit. Athens was looking to use a successful review to justify the inclusion of Greek bonds in the EU’s quantitative easing program next year. Such a move would better position Greece to return to bond markets when its austerity package ends in mid-2018. The review would also pave the way for International Monetary Fund participation in bailouts with Greece.

The IMF did not commit to the 2015 bailout but has been closely accompanying the program. The fund said it would participate in the program if this proves to be the final bailout, if Greece’s debt is deemed sustainable in the long term, and if Greece receives debt-relief measures.

The IMF argues the 3.5 percent target set by the EU is not sustainable in the medium term and either the target should be lowered or Greece would need more austerity measures. It has also called for a fixed-interest rate average of 1.5 percent for eurozone loans to Greece for the next 30 to 40 years.

Additionally, the fund suggested the EU free Greece from all payments on bailout loans until 2040.

Germany’s dilemma

The main obstacle to the EU-Greece talks and IMF participation is Germany. German Finance Minister Wolfgang Schäuble has stated that reforms are a prerequisite for any EU funds, and he is staunchly against debt relief for Greece.

As the largest economy in the eurozone, Germany is a major source of revenue for ECB funds. Given the combination of slowing global trade, high dependence on exports, and an influx of refugees, Germany cannot afford to continue funneling money into the EU to bail out other countries.

Such spending also would not sit well with the public as Germany enters an election year. At the same time, Berlin cannot allow a eurozone economy to collapse or leave the monetary union. German exports depend on easy access to European markets, and the departure of a country from the eurozone could jeopardize the common market.

And so the epic tug-of-war between Greece and the EU (led by Germany) continues as distrust of the EU mounts in Greece. Last May, Greece passed austerity measures worth 5.4 billion euros ($5.7 billion) that greatly impacted taxes, health services, public utilities, and pension funds.

The government has stated that no more reforms will be accepted. Meanwhile, Germany flexed its EU muscles on December 8 and convinced the union to propose that EU countries in March 2017 should start sending migrants back to Greece as part of a larger effort to prevent asylum-seekers from moving north.

Such a move would exacerbate the political, social, and economic pressures already facing the Greek government.

Athens runs the strong risk of not having the funds to pay its bills by June 2017. This does not take into consideration large debt payments that are also due in July. A fourth bailout is not on the ECB’s radar, and after seven years, Greece is running out of capital—literally and politically—to enact further austerity reforms.

If the IMF and Germany can’t agree on terms for IMF participation in supporting Greece, the eurozone will be forced to bear the full burden of propping up the Greek economy. The latter option is undesirable for members of the eurozone as it will clash sharply with rising nationalist sentiments in countries both funding and receiving economic support.

Watch George Friedman's Ground-breaking Documentary, Crisis & Chaos: Are We Moving Toward World War III?

Russian adventurism. An ailing EU. Devastation in the Middle East. These are just three symptoms of a systemic instability engulfing a region that’s home to 5 billion of the planet’s 7 billion people.

In this provocative documentary from Mauldin Economics and Geopolitical Futures, George Friedman uncovers the crises convulsing Europe, the Middle East, and Asia… and reveals the geopolitical chess moves that could trigger global conflict. Register to watch the documentary now.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules