Sustainable Greek Debt?

Europe Turns Attention to Unlocking Greek Aid – Bloomberg.

The German-led eurozone’s latest fudge to unlock Greek aid without anteing up more funds is raising the debt sustainability target from 120% to 124% of GDP by 2020.

Whichever number you pick, it is essentially meaningless for two reasons. First, a debt to GDP ratio that high is not sustainable. Greece is a relatively poor country and does not possess the economic power to support such a high debt ratio.

Second, the number is a forecast, and it is based on unrealistic economic growth scenarios created by the troika.

Since the crisis started in 2009, the troika has assumed that the Greek GDP slide has reached the bottom in the current year and forecasts a rise starting immediately at the time of the forecast. Every year, it is wrong, and in order to make it appear that the Greek debt reduction program is on track the troika creates more robust recovery scenarios as evidenced by successively steeper slopes of GDP growth.

If we use  a more realistic assessment of Greece’s future growth prospects pushing a return to mere stagnancy by 2016, Greece will never achieve even a 124% ratio by 2020. The numbers are manipulated to promote Germany’s agenda of doing just enough to prevent a Grexit while not actually helping the Greek people.

Sure, the political class is receiving money to hand out to favored classes and the banks are being bailed out, but in the meantime social spending on health, education and public sanitation are being cut.

All you need to know about the current state of the Hellenic Republic is that the suicide rate has increased 37% since the onset of the crisis and malaria has returned after being eradicated in 1974 due to the mosquito spraying budget being cut.

The only reason this disaster is allowed to continue is because the Greek people are more afraid of leaving the euro than they are of the effects of a continued depression. Eventually, they will reach a desperation point where the fear of continuing the present outweighs the fear of the unknown. When that threshold is reached, they will elect one of the parties promising to redo the bailout. Only then, will the country begin healing.