The Greek debt load was, is and will always be unsustainable, and a default is inevitable. The 2nd Iron Law of the Eurocrisis exhorts us to ignore politicians and focus on the numbers, and the numbers are not good.
Under the most optimistic assumptions, the Greek debt load will not decrease to 120% of GDP by 2020. I argue that this unattainable goal does is not sustainable anyway. Italy currently has this debt to GDP ratio, and it is in trouble, too.
The Greek addiction to the troika’s money is just like a heroin addict’s. At first the addict gets hooked on heroin, which is too expensive and does not allow him to function.
He then decides to enter a treatment program and begins using methadone. The new fix allows him to function at a higher but still lower lever than before drug use, and he is still an addict, just one of a different stripe. If he wants to get clean, he will have quit all drugs eventually.
Greece was addicted to cheap debt. When it could no longer score on world markets, it turned to the methadone of cheap debt from two troika bailouts. These bailout payments are maintaining its precarious existence, but ultimately if Greece wants to get better it has to quit debt entirely.
An addict does not wish to quit doing drugs, because the short-term pain from withdrawal appears to be far worse than slogging along at a reduced rate of function indefinitely.
This is where Greece finds itself now. If it chose to default on its debt and start anew, there would be severe consequences. As bad as the economy is now, it would get worse.
Though just like the drug addict, Greece will never get better unless it forsakes debt entirely. The bailouts keep it alive today at the cost of destroying all hope for the future.
The German led troika is like a drug dealer. It benefits from the junkie’s misery. It is in the dealer’s interest to keep junkie alive and hooked as long as possible.
Once the junkie quits, the dealer’s whole system is threatened. Therefore, the dealer will stop at nothing to maintain the status quo, because his very survival depends on it and he does not care about the welfare of the poor junkie.
Greece needs to go cold turkey. Withdrawal symptoms, as vicious as they are, will subside. Greece will then be free to start life anew with the hope and promise of knowing that what did not kill them made them stronger.