Richard Douthwaite in The Irish Times

Slippers 2

THE GREEK bailout will not help the Greeks. Indeed, the budgetary cuts it envisages have already made matters worse. The main reason Standard and Poor’s rating agency gave last month when it downgraded that country’s bonds to junk status was that it feared the austerity package would reduce Greece’s ability to generate an income and thus pay off its debts.

According to the IMF, Greece’s public and private overseas debt amounts to 171 per cent of its national income. Once the €110 billion being lent by the IMF and other euro zone countries over the next three years has been drawn down, this debt-to-GDP ratio will be at least 223 per cent. It could be much higher in view of the drastic cuts.

A 223 per cent ratio means that even if Greece only has to pay the 5 per cent rate set for the money being made available under the rescue plan on all its debt, its overseas interest payments in 2013 would swallow up more than 10 per cent of its national income and 150 per cent of its current export income. When you realise that the country is already running a balance of payments deficit equal to about 10 per cent of its national income, such huge payments are clearly impossible.

So if the Greek rescue package cannot rescue the Greeks, who will it help? The answer is the European banks who ignored the country’s limited overseas earning capacity and lent it €143 billion.

Continued

I liked The Ecology of Money so I'm pleased to see his views getting more coverage.

Kristopherus

David McWilliams said the same thing last week in the Indo. The only reason Germany has backed the EU effort is because it is German Banks and Bondholders who are most exposed, entirely through their own fault (greed). It would be no surprise if Greece defaults - might give the Jreeies something to think about.

noodler

I have no idea what to say here.

Maybe Austerity just has to come first in these situations.