A mere friend will agree with you, but a real friend will argue.
Russian Proverb
Before we discuss this issue lets focus on some facts. Many individuals claim that Greece has to be bailed out to maintain stability in the financial markets. This is a bogus argument, in the short term it might be true, but in the long term it just delays the day of reckoning and makes the situation infinitely worse. You do not help an alcoholic by chastising him and then allowing him free access to booze; it won’t work.
The current debt load is 115% of GDP and by 2011 it will be 150% of GDP. The Greek government has now stated that it will take 2 years more to meet the EU requirements; a great start and a clear sign that they will come begging for more aid down the line.
Greece only has a GDP of roughly 326 billion dollars, much smaller than their Neighbour Turkey, which has a GDP of roughly 830 billion dollars, On a Per capita Basis Greece knocks turkey out with a GDP per capita of roughly $32,000 dollars but so does Greece’s debt. Thus the bailout ($147 billion), alone is equal to roughly 44.5% of Greece’s GDP.
If the Greek economy can deal with and survive this crisis it will be one of the first to recover from a crippling debt ratio of more than 90% of GDP. If interest rates were to continue rising, and they will most likely as their debt has been rated as junk, it could spell the end. The interest rate Greece has to pay to borrow money is now on Par with emerging countries like India and Mexico; it is going to take a lot of work before the rating agencies lift Greece’s rating. This effectively eliminates their ability to borrow money on the commercial markets and almost guarantees that they will be begging for more help a few years down the line.
What should make investors even more sceptical is the fact that they cooked their books so one does not even know what data to trust, things could be infinitely worse than the Greek government is projecting. Roughly, 80% of this debt is foreign owned and a major portion of this debt is held by German and French citizens. For every 1% rise in interest rates, Greece…
