Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2022 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