Wednesday, July 1, 2015

Guardian: IMF Report Shows Greek Debt Unsustainable Regardless of What They Do

While most media focus on Greece seems to be whether there will be a "Grexit" or not (Jim Rickards still says there won't be), I have to think that the issue of whether Greece can actually ever pay the debt it owes is at least as important. 

This article in The Guardian quotes documents obtained from the IMF as saying Greece can't pay the debt no matter what they do (even if they agreed to all the creditors demands). Below are quotes from the article.


Secret documents show creditors’ baseline estimate puts debt at 118% of GDP in 2030, even if it signs up to all tax and spending reforms demanded by troika

"Greece would face an unsustainable level of debt by 2030 even if it signs up to the full package of tax and spending reforms demanded of it, according to unpublished documents compiled by its three main creditors.
The documents, drawn up by the so-called troika of lenders, support Greece’s argument that it needs substantial debt relief for a lasting economic recovery. They show that, even after 15 years of sustained strong growth, the country would face a level of debt that the International Monetary Fund deems unsustainable.
The documents show that the IMF’s baseline estimate – the most likely outcome – is that Greece’s debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded. That is well above the 110% the IMF regards as sustainable given Greece’s debt profile, a level set in 2012. The country’s debt level is currently 175% and likely to go higher because of its recent slide back into recession.
The documents admit that under the baseline scenario “significant concessions” are necessary to improve Greece’s chances of ridding itself permanently of its debt financing woes."
. . . . 
"These projections are from the report Preliminary Debt Sustainability Analysis for Greece, one of six documents that are part of the full set of materials that comprise the “final” proposal sent to Greece by its creditors last Friday.
These, which the Guardian has seen, were obtained by Süddeutsche Zeitung after they were sent to all German MPs with the expectation that the deal would need to be approved by the country’s parliament."
My added comments: 
This article supports what we have said here on the blog that both sides of this dispute know that Greece can never repay the debt they owe. Greece has already admitted they can't pay it and now this document shows the creditors know they can't pay it. 
This suggests that all this is more about political power and prestige for the EU than actually trying to fix the situation. Also, there is the usual tendency to just try and push the problem off into the future awhile longer rather than to actually admit the truth of the real situation (which causes the public to lose confidence). 
The pawns who get hurt in all this game playing are the poorest people in the country who really have no leverage and are simply at the mercy of whatever fate is decided for them. Also, those who blindly trust that those in charge of the system will look after their best interests. Clearly, that is not the case with this situation in Greece (and won't be anywhere else this kind of problem arises).
If there is any lesson readers here can take from Greece, it is that you can forget about the government or a central bank coming to the rescue when things get tough. You must prepare on the basis that you are on your own and act accordingly. You need some kind of emergency fund you can access outside the system if need be. Any other outlook is naive as many in Greece are now finding out.

Added notes 7-2-15:

First we have The Guardian quoting an IMF report saying Greece needs massive debt relief. This is being viewed as supportive to the position of the Greek government and a warning to the EU just before the referendum. It's also an official admission of what we keep saying here. Greece cannot pay off this debt no matter how they vote or whether they stay in the EU or not without debt relief of some kind.

Then we have found this old article in the Wall Street Journal from 2012. Deja Vu all over again?

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