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
    +15

    Comment number 2.

    Debt pushers should be regarded like drug pushers.

    Once they have you hooked it is a long slow decline, with little chance of kicking the habit.

    And ultimately leads to an unpleasant end.

  • rate this
    +12

    Comment number 5.

    Nobody has convinced me that this is not just more can kicking.
    Please can we get this over with?

  • rate this
    +12

    Comment number 23.

    What really sticks in my throat is that European taxpayers' money will be used to enrich those who have speculated on Greek debt since the problems became apparent. They have bet that a political bail-out will enable them to be repaid at par and make huge profits from their daring 'wealth creation'. How much of the outstanding debt has been recently traded?

  • rate this
    +9

    Comment number 4.

    The UK contributing to Greece to stop a default may save Ireland going bust now, and wiping out a British bank or two in the process.

    But it will only lead to a bigger Greek and a bigger Irish bust in a year or two, with more pain then....
    So don't do it, UK.

  • rate this
    +8

    Comment number 11.

    Let the countries that are falling, fall. let others that become unstable fall. write off the debts of all countries and start afresh in a new world. debt that is not supported by value of assets is a debt that cannot be paid or sustained by the people being asked to repay it. the poor and working class are now being pushed around by the rich and havegots to bare the burden. this is not right.

 

Comments 5 of 127

 

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