by Larry Elliott, The Guardian:
The Greek debt pile is larger than ever – and the solution seemingly ever more remote
It’s that time of year again. Greece is running out of money. There are violent protests in Athens. Eurozone finance ministers are gathering in Brussels in an “emergency” conclave to decide what to do next.
The International Monetary Fund has already made it clear what it thinks should happen. It says Europe should cut Greece some slack by easing the terms of its bailout agreement and offering a solid dose of debt relief.
Christine Lagarde, the IMF’s managing director, has said that if Germany and its allies in the Eurogroup of finance ministers insist on making unrealistic demands of Greece she will not risk any more of the fund’s money.
This makes sense because it appears clear to all but the hardliners that the situation in Greece has become a mixture of the tragic and the absurd. Tragic, because the economy has shrunk by a quarter in the past eight years – equivalent to the contraction that the US suffered in the Great Depression – and the unemployment rate is 24.4%. Absurd because most of the €86bn (£68bn) that has been earmarked for Greece – provided it pushes through a raft of demand-destroying measures – will go straight out again to pay the country’s main creditors: the European Central Bank and the IMF. And with each bailout (this is the third since 2010), Greece’s debt mountain gets bigger.
There are three possible ways forward. One is to conclude that Greece needs to find a way of paying off the money it has borrowed, and so set stiff repayment terms. Under pressure last summer, when its banks were closed and the country was running out of cash, Greece agreed it would run a primary budget surplus (an excess of tax receipts over public spending once debt repayments have been excluded) of 3.5% of GDP by 2018 and in every year thereafter. Wolfgang Schäuble, Germany’s finance minister, says Greece should stick to its promises.
Greece’s debt as a percentage of GDP is twice the EU average.
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