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Are Greek bailouts just postponing the inevitable?

By Dave Burridge

So Greece has once again received a huge bailout package from the EU- this one totalling more than £110bn. But is this just delaying the inevitable default?

Greece’s total debt currently stands at an enormous 160% of real GDP, a realistically unsustainable level.

However, there is something that is different about this bailout. Various banks and private creditors to whom Greece owe money have agreed to take a hit on some of the debt, 53.5% of it to be precise.

This is a positive move which can hopefully begin to reduce the actual value of Greek debt.

Receiving further loans simply adds to the money which Greece will eventually have to pay back and as such doesn’t really solve the problem in the long term. However, a write down physically reduces the amount that requires repayment.

In return for this Greece is expected to implement further austerity measures on top of the deeply unpopular measures just introduced which have caused many protests.

Greek economic growth is severely negative at the moment, with a growth of minus 7% in the fourth quarter of 2011. In order for the Greek budget to become positive not only do they need to spend less but the economy needs to grow in order for tax receipts to grow and the deficit to become a surplus.

The target is for Greek debt to be only 120% of GDP by 2020. Still a very large amount of debt.

This begs the question, is each further round of bailout money futile? Is it simply delaying the inevitable default? The potential consequences of a default are huge and the ramifications large but Greece is finding it increasingly hard to implement austerity measures upon it’s citizens and each round of austerity pushes the economy deeper into recession.

Whilst this may seem to be a solution in the medium term, the general feeling is that Greece is far from out of the woods yet.

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