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
    -4

    Comment number 32.

    So 110bn last year, 110bn this year and 110bn next year etc. Is this anyway to run an Empire?

    It is so painfully obvious these public sector workers can't run anything.

    Why is Peston and co not blaming these greedy, power hungry politicians as he was with the bankers? I smell hypocrisy.

  • rate this
    -2

    Comment number 33.

    Well the unions look at Greece going bust and seem to think that these demonstrations are just another excuse for a day off when will the penny drop that the vast majority of the country is in for a haircut and there is not other solution than the bric countries disappearing fat chance there

  • rate this
    -2

    Comment number 36.

    An increasing irritation with these feedbacks is the poor quality of spelling. It does make one wonder if the respondents comments are worth taking on board.
    It's some many years since I had a holiday in Greece - because of the effect of the new Euro. Maybe I will return to Lindos in a year or so - when things have reverted. Burst the bubble!

  • rate this
    -2

    Comment number 96.

    Some people think it is a joke about the Greeks selling off a few islands, but is it really that silly? I bet Turkey would pay 200billion for the Greek part of Cyprus. This would also end a nasty armed stand-off and mean the UN troops could withdraw. The Greek Cypriots would not need to move if they do not want to, just become Turkish citizens. Turkey is a democracy, so what's the problem?

  • rate this
    -1

    Comment number 110.

    'Beware greeks bearing gifts?' This well known phrase sounds rather odd now.
    It has been well known for decades that the greek national sport is avoiding paying taxes and coupled with a weak and vascilating Greek government this problem surely could have been seen coming by the clowns who allowed them entry to the Eurozone. It would be nice if someone responsible from the EU resigned.

 

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