Greece Hasn’t Got a Debt Problem. It Has a Lack of Growth Problem!
by Forgot About Keynes
At something like 175% of annual GDP it is easy to think that Greek public debt is out of control. But, let’s look at it another way. If Greek GDP had stayed the same as 2008 levels instead of falling by 30%, and also assuming current levels of debt, the ratio of debt to GDP would now be 175 x 0.7 = 122.5% Which might still be a little on the high side, for a non sovereign currency issuing country, but it would be looking a lot more manageable.
If Greece had instead grown its economy by the same amount, the ratio would be 122.5/1.3 or 94%. OK still a little high, maybe, but not the catastrophe the Eurozone has on its hands at the moment.
The key to managing Greek debts is help enable Greece to service them. There’s no real need to pay them off with interest rates…
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