- Greece’s central government is roughly half of its GDP (by some measures, it’s 59%), meaning that the national economy is heavily dependent on state revenues and spending. For context, U.S. government spending is about 20% of U.S. GDP. As a rule of thumb, the private sector must generate the wealth that pays taxes and supports state spending. This leaves a relatively small private sector with the task of generating enough wealth to support state spending, pay interest on the national debt and pay down the principal.
- Greece runs a trade deficit, i.e. a current account deficit of almost $30 billion annually. In the 14 years that Greece has been an EU member, this adds up to roughly $400 billion—a staggering sum for a nation with a GDP of around $200 billion.
- Austerity and a reduction in borrowing/spending have devastated the Greek economy, as GDP has shrunk 26% while unemployment has soared to 26%.
- While public debt is pegged at 175% of GDP, external debt is roughly 285% of GDP—a much larger sum. By all accounts, a significant portion of the Greek economy is off-the-books (cash); even if this is counted, the debt load on the private sector is extremely high.
- Foreign exchange reserves and gold holdings are a tiny percentage of government spending and GDP.
The Subprime Template
- Greece can never escape the cycle of increasing debt until it exits the euro and returns to a national currency.
- The debt is so outsized compared to Greece’s private sector that it must be written off. What cannot be paid will not be paid.
This is a syndicated repost courtesy of oftwominds-Charles Hugh
Originally appeared at: http://davidstockmanscontracorner.com/greece-and-the-end-of-the-euroland-fantasy/
Greece and the End of the Euroland Fantasy is a story from: BitcoinWarrior.net