Why Greece needs another 110bn euros

 
Communist party affiliated protesters in Greece Protests against the government's latest austerity measures continue in Athens

Greece's current predicament can be told in numbers, big ones.

The national debt is around 340bn euros.

That is one and a half times the value of everything the country produces, its GDP, or 30,000 euro for every Greek citizen

But even so, Greece continues to borrow, at a rate of more than 20bn euros a year, because of a deficit (the gap between what the Greek government spends and what it brings in from tax revenues) which is running at 10% of GDP every year.

Little wonder then that banks and commercial investors no longer want to lend to Greece. They fear that Greece has borrowed more than it can ever repay and that they would not get their money back.

But if Greece defaults on its debts, that will make its own banks insolvent and do severe damage to banks and financial institutions in Germany, France, the US and elsewhere (not exactly a secret, that).

'Painful truth'

So just over a year ago Eurozone governments and the International Monetary Fund promised to provide Greece with emergency credit of 110bn euros

It wasn't enough. From 2012-2014, Greece has to find something like 170bn euros or 180bn euros to repay maturing debts and finance the government.

So with what's left over from that original emergency loan, Greece probably needs another 110bn or 120bn euros or so of additional finance (George Papandreou, Greece's premier, put the requirement at 110bn euros over the weekend).

Greece crisis

Germany, France and other Eurozone governments don't want to provide all the extra money - which is why they're putting pressure on Greece to contribute about 30bn euros through privatisations and on banks and investment funds to lend 30bn euros or so back to Greece from the cash they receive when existing Greek loans mature.

Goodness only knows whether that 60bn euros from privatisations and so-called private-sector involvement will turn up.

So the potential increased exposure for Eurozone taxpayers of between 50bn euros and 120bn euros is sufficiently large to provide quite a big incentive for the British government to argue that Greece isn't its problem.

Which is why David Cameron, the British prime minister, is insisting that the the UK won't be part of the solution.

Right now, there doesn't seem to be huge pressure from Eurozone governments for the UK to chip in - although the German finance ministry is angling to find a way to hook Britain into the rescue.

The painful truth for Britain is that a Greek default that precipitated big losses on loans to Ireland, Portugal and Spain would be immensely unpleasant for the UK's supersized banks - and, by implication, for British taxpayers too.

And the UK could hardly insulate itself from a Eurozone tipped back into recession, were that to be the consequence of a disorderly Greek default.

In other words, there could be circumstances in which it was in the British national interest to contribute to a Greek rescue (not that you'll hear prime minister or chancellor admit that, in anything other than conditions of a clear and present danger of Greek meltdown).

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 127.

    Europe can not support all the failing currencies/economiesm it is a delusion of granduer on behalf of the Brussels politicians, who wish to 'save the World'. Many of the newer European countries are almost third world, with no perception of finance and industry. Their governments wish to please the people without any idea of economics, hence the debts. Let them go bust!

  • rate this
    0

    Comment number 126.

    John @121
    This type of positive feedback bubble is called biological growth. It's a product (pun intended) of financial derivatives, the network effect and the outsourcing of money creation to the financial sector. We should have a negative feedback system of money creation, where money supply grows during bust periods and is static during boom periods. Instead we have biological money.

  • rate this
    +1

    Comment number 125.

    How do we know exactly what the debt should be?
    I have said over and over the books must be audited to see how the debt came to be, what comprises it. As far as I know such an audit has never occurred. So I keep asking myself why not. I do know that one south American country did such an audit & found that the true debt was 800M vs. 3.4B. I wish I could remember the details of this audit.

  • rate this
    0

    Comment number 124.

    @118.blacksheep44

    No matter how much that idea circulates as a "joke" it will never happen. Giving their Germans all public companies with prices below cost is treason enough that someone will end up paying for.

  • rate this
    0

    Comment number 123.

    111.biggles247
    They bit the bullet last year, we too see that this is going nowhere and would prefer to bite the bullet for something that may actually work and not something that will just ruin us with no benefits at all.

    "In my naive way" - Ditto... would be nice to read both sides sometimes...

 

Comments 5 of 127

 

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