Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Forex Trading Management: The Importance of Being Prepared - 19th Feb 19
Gold Stocks are Following This Historical Template - 19th Feb 19
Here’s Why The Left’s New Economic Policies Are Just Stupid - 19th Feb 19
Should We Declare Emergency for Gold? - 19th Feb 19
Why Stock Traders Must Stay Optimistically Cautious Going Forward - 19th Feb 19
The Corporate Debt Bubble Is Strikingly Similar to the Subprime Mortgage Bubble - 18th Feb 19
Stacking The Next QE On Top Of A $4 Trillion Fed Floor - 18th Feb 19
Get ready for the Stock Market Breakout Pattern Setup II - 18th Feb 19
It's Blue Skies For The Stock Market As Far As The Eye Can See - 18th Feb 19
Stock Market Correction is Due - 18th Feb 19
Iran's Death Spiral -- 40 Years And Counting - 17 Feb 19
Venezuela's Opposition Is Playing With Fire - 17 Feb 19
Fed Chairman Deceives; Precious Metals Mine Supply Threatened - 17 Feb 19
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19
Will Stock Market 2019 be like 1999? - 14th Feb 19
3 Charts That Scream “Don’t Buy Stocks” - 14th Feb 19
Capitalism Isn’t Bad, It’s Just Broken - 14th Feb 19
How To Find High-Yield Dividend Stocks That Are Safe - 14th Feb 19
Strategy Session - How This Stocks Bear Market Fits in With Markets of the Past - 14th Feb 19
Marijuana Stocks Ready for Another Massive Rally? - 14th Feb 19
Wage Day Advance And Why There is No Shame About It - 14th Feb 19
Will 2019 be the Year of the Big Breakout for Gold? - 13th Feb 19
Earth Overshoot Day Illustrates We are the Lemmings - 13th Feb 19
A Stock Market Rally With No Pullbacks. What’s Next for Stocks - 13th Feb 19
Where Is Gold’s Rally in Response to USD Weakness? - 13th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

Greek Debt Tragedy is Far From Over

Interest-Rates / Eurozone Debt Crisis Aug 11, 2018 - 02:05 PM GMT

By: Rodney_Johnson

Interest-Rates Last week, Greece received $17 billion from its creditors, representing the final installment of the country’s third bailout since 2010.

This is the last one.

Really. Stop laughing.

There’s no doubt the Southern Mediterranean country has endured a lot of pain over the last eight years.


To revamp their economy, the Greeks cut back on public pensions, increased taxes, and swept away some of their debt overhang.

The results have been impressive.

After watching their GDP fall by as much as 25% from pre-recession levels, the Greek economy has grown over the last two years and the government has posted primary (meaning before debt payments) surpluses.

That’s awesome, but it’s not enough.

This is a tragedy that seems to have no end.

The Greeks and their creditors claim the bailout can end because the ailing country has mended and has a sustainable path.

But the details tell a different story.

To make the numbers work, the Greek creditors gave the country a short-term pass on much of its debt, which includes a 10-year extension on previous loans, and a 10-year moratorium on interest and amortization.

Essentially, Greece is OK as long as it doesn’t have to pay back very much. But even that’s not a sure thing.

Greece must run a primary budget surplus of 3.5% until 2022, and then a 2.2% primary budget surplus after that.

As a refresher, NO ONE does that.

Maybe a country, like Germany, runs a bit of a surplus for a year or two. Maybe a country, like Australia, runs a decent surplus for years.

But a 3.5% surplus for several years, followed by 2.2% indefinitely?

And this in a country with 20% unemployment, a difficult workplace environment, few exports and an aging population.

Not a chance.

To make matters worse, Greece is starting behind the eight ball.

The country currently carries 180% of debt-to-GDP, and has raised taxes to the point that it’s driving the economy back underground.

Starting this year, professionals earning 5,000 euro per month, about $5,500, must pay 75% in combined taxes and security contributions.

That income level is a mere $66,000 per year, which is decent, but not excessive.

Imagine if three out of every four dollars you made had to be sent to Uncle Sam.

And that’s not all.

Greek banks haven’t recovered.

In 2016, non-performing loans made up just over 50% of all loans in Greek banks. That number dropped to 43% earlier this year, and the ECB wants to see bad loans at 35% by the end of 2019.

But that still means that more than one-third of all loans in Greek banks aren’t performing!

With capital ratios at a generous 10%, the Greek banking system remains dead broke.

Not everyone is blind to the situation. The IMF refused to participate in the last few rounds of lending to Greece, noting that without more loan forgiveness the country couldn’t pay its debts.

Everyone knows this, but the other lenders – the European Commission and the ECB – have bigger problems.

They can’t ask investors holding Greek bonds to take a haircut because those investors include other central banks in Europe as well as some of the largest private banks, all of which have their own capital problems.

As long as they keep the debt on their books, even if they allow Greece to take 100 years to repay it, they can claim that the debts are in good standing.

It’s a game of musical chairs.

When the music stops, not everyone will have a seat.

When the Greek economy finally breaks down, it’s possible the country will finally call it quits on the euro.

When that happens, even the ECB will have to admit that this is a tragedy, not a triumph.

P.S. Back here stateside, our Adam O’Dell is getting ready to celebrate the five-year anniversary of his Cycle 9 Alert trading service with a special event he’s calling the “Seven-Figure Summit.”

He just bagged a 430% gain in the service, so now’s the perfect time to hear what he has to say.

Click here to for more information and to sign up for free.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2018 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson 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