Last week, Greece received $17 billion from its creditors, representing the final installment of the country’s third bailout since 2010.
This is the last one.
Really. Stop laughing.
There’s no doubt the Southern Mediterranean country has endured a lot of pain over the last eight years.
To revamp their economy, the Greeks cut back on public pensions, increased taxes, and swept away some of their debt overhang.
The results have been impressive.
After watching their GDP fall by as much as 25% from pre-recession levels, the Greek economy has grown over the last two years and the government has posted primary (meaning before debt payments) surpluses.
That’s awesome, but it’s not enough.
This is a tragedy that seems to have no end.
The Greeks and their creditors claim the bailout can end because the ailing country has mended and has a sustainable path.
But the details tell a different story.
To make the numbers work, the Greek creditors gave the country a short-term pass on much of its debt, which includes a 10-year extension on previous loans, and a 10-year moratorium on interest and amortization.
Essentially, Greece is OK as long as it doesn’t have to pay back very much. But even that’s not a sure thing.
Greece must run a primary budget surplus of 3.5% until 2022, and then a 2.2% primary budget surplus after that.
As a refresher, NO ONE does that.
Maybe a country, like Germany, runs a bit of a surplus for a year or two. Maybe a country, like Australia, runs a decent surplus for years.
But a 3.5% surplus for several years, followed by 2.2% indefinitely?
And this in a country with 20% unemployment, a difficult workplace environment, few exports and an aging population.
Not a chance.
To make matters worse, Greece is starting behind the eight ball.
The country currently carries 180% of debt-to-GDP, and has raised taxes to the point that it’s driving the economy back underground.
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