The Greek ‘debt deal’ has now been secured which kicks the problem firmly up the road.
In immediate terms this should have a massive positive effect for the EU and this has avoided a huge disorderly default.
This debt write down of bonds now paves the way for further aid to be advanced to Greece allowing it to meet its obligations under bond redemption later this month.
This still amounts to the biggest sovereign debt default in history. Greece will still be under a huge ongoing debt burden. The best possible outcome is expected to be a debt to GDP ratio of 120 per cent by the end of this decade.
Most economists (and politicians) know that this is unsustainable – the outcome is much more likely to be worse. This is far from the final restructuring of Greece’s massive national debt.
Unfortunately, this default now increases speculation that Portugal could follow the same path.
Yet, Nicholas Sarkozy recently declared that the Greek “Problem is Solved”. Is there a French election looming?...This seems to me to be mighty optimistic! Watch this space….
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