Hellene, and mean
Simon Johnson -- shown above, looking a bit like Bob Newhart -- has had his manic anti-Laputa moments lately. But it seems, come the ultimo pinch -- once a guy's spent some quality time trawling the watery byways of the planet for the IMF in full B and D mode... well, you know... ya just can't take the bonecrusher out of 'em.
Here's Simon pressing our brave little grasshoppering Hellenes to morph into fiscal anorexia mode and deal with their "sovereign debt bubble" by... paying it off!
"By the end of 2011 Greece’s debt will reach around 150% of GDP... About 80 percent of this debt is foreign owned, and a large part of this is thought held by residents of France and Germany."So? Here's the kill shot:
" Every 1 percentage point rise in interest rates means Greece needs to send an additional 1.2 percent of GDP abroad to those bondholders."Comes now the "what if" permutation arcade:
"What if Greek interest rates rise to, say, 10% – a modest premium for a country which has the highest external public debt/GDP ratio in the world, which continues (under the so-called “austerity” program) to refinance even the interest on that debt without actually paying a centime out of its own pocket, and which is struggling to establish any sustained backing from the rest of Europe?"Note the piling-on of rhetorical florishes there -- not just blatant signs of bad faith but downright untruths(*). To continue:
"..Greece would need to send a total of 12% of GDP abroad per year, once they rollover the existing stock of debt to these new rates (nearly half of Greek debt will roll over within 3 years).As if that's not enough:This is simply impossible and unheard of for any long period of history. German reparation payments were 2.4 percent of GNP during 1925-32, and in the years immediately after 1982, the net transfer of resources from Latin America was 3.5 percent of GDP (a fifth of its export earnings). Neither of these were good experiences."
"On top of all this Greece’s debt, even under the IMF’s mild assumptions, is on a non-convergent path even with the perceived “austerity” measures."Sounds ferocious, eh? Especially since, as doc Johnson has said elsewhere, "Bubble math is easy".
These "numbers" can get a signifigantly opposite play. Enter St Paul of Nassau: "In the past, some countries have managed levels of debt that high or higher, without default...So how is that possible?
Suppose that Greece had as much credibility as Germany, and could borrow at a real interest rate of 2 percent. Then stabilizing the real value of its debt, even with a debt ratio of 150 percent, would require a primary surplus of only 3 percent of GDP. That’s certainly possible for some countries, although maybe not for Greece... this suggests that optimism or pessimism about future default can, to at least some degree, be a self-fulfilling prophecy." As if to scotch Johnson's own bitter prophecy, the Euro barons are making nice about Athens -- err, not Byronic nice; more like "them's pets of the realm" nice.
In any case these numbers are far from horrorific in absolute terms. Imagine, say, South Carolina in fiscal trouble. Could the rest of the states bail her out through the grand offices of Uncle Sap?
"Soitenly!" as "Curly" Krugman pointed out some time ago: "Overall, the group of stressed economies account for about 20 percent of the eurozone’s GDP", Krug observes -- less of a hard slog than, say, if Uncle were to bail out Dixie (though we have to put Spain aside as TBTF).
Hell, it gets to be a damn fine boat ride. If the Euro central bank can borrow at sub German rates, then...
But alas, mates, a greater fraud is in progress here, perpetrated upon a lesser fraud, and in the end 'twill all prove just another silk-hat squeeze play, a starve-the-little-critters gambit, a nifty iron-law flimflam, a way to crumple the welfare state just a tad more, foul its safety nets and crimp its feckless hu-cap squanderings. "They're in a pickle, boys, so let's squelch 'em and squelch 'em gooood!..."
To paraphrase Andy Mellon: "Starve starve starve! Starve Greece! Starve Portugal! Starve Latvia and Estonia too, and oh yes, of course, begorrah, starve that dirty little figment on the Emerald Isle."
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(*) The rates on Greek sovereign debt -- as a mere fly speck out of the global total -- could be easily kept down by simple purchases on the open market by the European central bank. This fantasy of ballooning rates leading to a cascade of attacks on other weak sister sovereigns is as unnecessary as the fear of, of... the fear of wet hair when you're about to leave a hat shop in a rainstorm.
As to this straight-from-scratch bullshit --
"[10%] is a modest premium for a country which has the highest external public debt/GDP ratio in the world"-- this alleged modest premium is in fact huge by OECD standards.
And as for Greece the debt king -- why, the chaps have a smaller GDP to debt ratio than Japan, among others.
Check out Japan's borrowing rates.

