Greek Debt Write-Off (AKA Default)

  • #1
I’m having a little trouble understanding this current Greek Debt deals. From what I understand Sustainable debt levels (when quantitative easing is not allowed) are deemed to be 120% of GDP for a country. Greece’s current debt to GDP is 150% GDP and they plan to reach sustainable levels of 120% by 2020.

To do this I understand there will be a 50% debt forgiveness but 50% of 150 GDP is 75% GDP. So how does this 50% debt forgiveness equate to achieving a debt to GDP levels of 120%. Is it because they are delaying the debt forgiveness or am I making a math mistake?
 

Answers and Replies

  • #2
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Your math seems to result in a 45% debt to GDP credit over 8 years.

Three weeks ago the DOW monthly average was 0.0 and today it is 9.1 percent higher than it was a month ago. The gain is almost what its entire level was in 1970.
 
  • #3
AlephZero
Science Advisor
Homework Helper
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For the baseline "no action" scenario, the ratio would rise higher than 150% by 2020.

But all these forecasts are sensitive to the assumed growth rate of the Greek economy, and IMO that number is little better than a guess. Even the historical data from the Greek government is "unreliable", to use a polite euphemism.
 
  • #4
For the baseline "no action" scenario, the ratio would rise higher than 150% by 2020.

But all these forecasts are sensitive to the assumed growth rate of the Greek economy, and IMO that number is little better than a guess. Even the historical data from the Greek government is "unreliable", to use a polite euphemism.
I guess the question is, why is it better to wait until 2020 and write off 50% of the debt then write off 20% of the debt now and be done with it?
 
  • #5
32
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I’m having a little trouble understanding this current Greek Debt deals. From what I understand Sustainable debt levels (when quantitative easing is not allowed) are deemed to be 120% of GDP for a country. Greece’s current debt to GDP is 150% GDP and they plan to reach sustainable levels of 120% by 2020.

To do this I understand there will be a 50% debt forgiveness but 50% of 150 GDP is 75% GDP. So how does this 50% debt forgiveness equate to achieving a debt to GDP levels of 120%. Is it because they are delaying the debt forgiveness or am I making a math mistake?
Media is confusing you with sloppy reporting...

The 50%-haircut, which is still not fully agreed yet, will only be suffered by the private lenders (thank God) and will total a haircut of only approx 20% of the outstanding sovereign greek debt.

http://ftalphaville.ft.com/blog/2011/10/14/702546/greek-haircuts-vs-greek-debt-cuts//
 
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