Monday, September 20, 2010

Greek Debt In the European Context

This graph, from a recent roadshow presentation by Greek Finance Minister George Papaconstantinou, caught my attention. It speaks not only to the overall challenge of managing debt in Europe, but it also touches on the positive reality of the relatively low level of private sector debt in Greece. When adding public and private debt, Greece ranks 2nd from the bottom in a group of 14. Needless to say, liabilities of over 250% of GDP are huge, but in the grand scheme of things, what the graph shows is that Greece is distinctive not for its profligacy but by the fact that in Greece it was the public sector that went on the same borrowing binge that most other countries experienced in their private sectors.


  1. Greece’s total gross debt is one third per capita of Denmark, 60%/Germany, & 50%/France.

    Greece’s GDP per capita is 66%/Denmark, 68% /Germany, & 77%/France. Arguably, therefore, Greece’s indebtedness is less than others in the EA in terms of ability to service debt. Greece’s PPP GDP is 82% of EU-27.

  2. You are wrong to cite the problem as public sector profligacy. The problem was that banks grew mortgage lending and left lending to business flat, especially to industry. This caused the growing trade deficit. The central bank told greek banks to stop this several times but was simply ignored. The banks bought foreign banks in Balkans mainly at a cost of 100% ratio to GDP. But, also national debt is looked at too crudely. Greece has assets too, public sector's cash deposits externally are worth about 25%/GDP & fell in value by 17%/GDP & 10% at least is anyway entirely internal to government, hence one could argue its true net debt is over one third less than gross figure.
    Also,don't forget higher the public debt the lower the private debt. If government had borrowed less, private sector would be more. 25% of Greece's national debt is money it loaned to the banks. which they should repay in time.


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