Greek lesson: we are all in the same boat PDF Print E-mail
Utopia - Government economics

Greek lesson: we are all in the same boat
By Edmund Conway
April 14th, 2010

How much worse off is Greece than the rest of the developed world?

The answer, according to Dylan Grice of Societe Generale, is: not as much as you might have assumed. In fact, he points out that in many senses it is actually a little better-off than many other countries, which ought to be slightly alarming for the rest of us.

In particular, he strips out a useful chart which underlines the fact that Greece (and for that matter the UK) have, on average, a far longer-dated stock of government debt than most other countries.


What does this mean? Grice helpfully presents another chart which tells the story. Essentially, if you’re having to roll over lots of your debt each year, as you will when it expires so often (and because you don’t actually want to pay it back when it expires) it means you have to issue a hell of a lot more debt at the day’s going interest rate. Which in turn leaves you far more vulnerable to a sudden sharp increase in interest rates.


Now, one should also bear in mind the fact that Greece has an extremely large current account deficit, and a large net investment shortfall (essentially the cumulated balance sheet for the country). But then so do plenty of the other countries in these charts. The difference? Effectively that Greece suddenly lost credibility in the markets. So in the end it was the capriciousness of investors that was the deciding factor. Or, as Grice puts it:

“the most chilling similarity between the Greeks and everyone else isn’t in the charts above showing that their various debt metrics are in the same ballpark, it’s in the realisation that we too are subject to the same iron-clad laws of budget sustainability and that we too are as helplessly vulnerable to any reassessment of sovereign risk by the famously fickle Mr Market.”

In the end, all Western nations face a long-term dilemma (which has been the case since before the crisis, but is more front-and-centre of everyone’s minds now). Over the past 50 years we have committed ourselves to massive welfare states which our economies are simply not generating enough cash to finance. This final chart sums up the problem.


We go on about the mass of off-balance sheet debts faced by the UK government (eg pensions, healthcare, PFI etc) but this is not a problem peculiar to the UK. However, it is an issue that all democracies should be discussing. In his manifesto launch yesterday, David Cameron talked about the most radical overhaul in welfare since the system was launched. That is precisely what is needed. The problem, as I wrote in the paper today, is that neither the Tories nor any of the other parties has provided much detail on how they would go about doing it.

Source: Telegraph UK.

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