# Greek Debt Write-Off (AKA Default)

• John Creighto
In summary, the current Greek debt to GDP is 150% and they plan to reach sustainable levels of 120% by 2020 through a 50% debt forgiveness. However, this forgiveness is only for private lenders and will only result in a 20% reduction of the sovereign Greek debt. The accuracy of these forecasts is uncertain due to unreliable data from the Greek government and the sensitivity to the country's economic growth rate. The question remains why it is better to delay the forgiveness until 2020 rather than writing off a smaller portion of the debt now.

#### John Creighto

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?

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.

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.

AlephZero said:
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?

John Creighto said:
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//

Last edited: