The Greeks were the folk that brought you the sovereign debt crisis. National debt has been the obvious elephant in the room for many years, but everybody was too polite to talk about it. It was not a problem that snuck-up on the world whilst we were not looking. The US debt is a staggering $14.1 trillion that’s $14 100 000 000 000 – it represents a notional debt of $70 000 per person, given that the population of the USA is something like 200 000 000 people. Japanese national debt is running at 200% of GDP and comes in at $8.6 trillion making the Greek debt of “just” €310 billion pale into insignificance.
When the global financial crisis struck, the spotlight shifted onto bad debt (after all, it was caused by the sub-prime crisis). The Greeks (in fairness, a previous administration) had fudged the issue of convergence to join the Euro and the real figures emerged at the worst possible time. This has put the focus of sovereign debt firmly on the smaller EU economies (for the moment). The scrutiny forced up the cost of borrowing (in the shape of yields on their bonds) for Greece to utterly unsustainable levels.
In the end (May 2010), the EU and IMF put together a package to bail the Greeks out (this was an interest bearing loan, not a gift) worth €110 billion. The loan was conditional upon reforms to the Greek economy and a raft of austerity measures which was designed to put Greece on a sustainable economic footing – eventually. It was to be paid in a series of tranches which would be released if suitable progress was made.
In retrospect, the caveats to the loan and payment of it in instalments may have been a mistake. The Greeks have worked hard to pass very unpopular austerity measurements into law, but sales of state assets have been tardy. The world recovery has been stuttering, to put it kindly, and it now seems that the Greeks will miss their deficit reduction targets for this year. If the next EU/IMF funding tranche is not released (and according to the letter of the agreement, it shouldn’t be) then Greece will be forced into a default.