Tuesday, July 26, 2011

Greek debt to stabilize at 160% of GDP - Ouch!

A report from Wells Fargo Securities, linked here in pdf, confirms that the long term sustainability of Greek Debt under Bailout 2.0 is far from assured.

Executive Summary

In the first of two special reports on the European sovereign debt crisis, we analyze the second bailout package for Greece that leaders of the European Union (EU) recently announced. Our calculations show that the package should stabilize the government’s debt-to-GDP ratio at approximately 160 percent over the next few years. However, the calculations are sensitive to assumptions about nominal GDP growth and the government’s primary budget surplus. If the Greek economy should stagnate at fairly slow rates of nominal GDP growth or if the government is unable to incur large primary surpluses for an extended period of time, the debt-to-GDP ratio. will rise further.

In our view, it would be premature to state that Greece is “out of the woods.” In a
soon-to-be-released second report, we will analyze debt sustainability in some other highly indebted European countries.

This blog looks forward to the next report on Ireland, Portugal, Spain, Italy and Belgium promised to be available shortly.



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