Greece Stability Plan 2009-2013
I've been meaning to write about Greece's fiscal situation for a while, and still intend to publish a comprehensive post on the matter soon.
But since this might be a while, I thought I'd post the forecasts from Greece's hot-off-the-oven Stability plan anyways together with some random, and - in the grand tradition of macroeconomics - not necessarily terribly well thought-through opinions:
1. Thinking mostly about 2011 onwards, I think the growth forecast might be a bit on the conservative side.
2. The unemployment forecast is definitely on the optimistic side; that said, it's worth noting that they have reasonably forecasted unemployment not falling until 2013.
3. Who on earth knows what the deficit or debt are as a percent of GDP. They are OK ball-park figures though, and in any case they are not very relevant at these levels.
4. The probability Greece will be defaulting is extremely low. Buying Greek debt now (if you are willing to hold to maturity) offers juicy returns with very little risk. Btw, this is not investment advice, the value of your portfolio can go up as well as down, you invest your money at your own risk, etc. (isn't there a law that requires me to say this?)
And a question to everyone out there: If Japan - which at the end of the day can always inflate the debt away (yes, they really can!) - comfortably holds debt at 170%-200% of GDP, why can't Greece?
Forecasting unemployment 2 years ahead seems quite ridiculous. It seems obvious that it will be higher than now, but by how much is difficult to forecast.
Why do you think that Japan holds "COMFORTABLY" debt at 170%-200%. Japanese bailouts in the early 90ies (as the US/UK did 08/09) have caused Zombie-banks that have dragged down the whole system. This enforced artificial life support has caused many unwanted side effects, e.g. the Japanese stock market is as low as it was 19 years ago! And it was that low even before the 2007-2009 crisis.
Your suggestion that nothing is wrong with this approach and that Greece should follow suit is outragous.
Fact is that Western countries are highly indebted and I do believe that one of them will default on its debt, Ireland, Portugal, Spain, Italy or Greece, who knows. No matter who it will be, it will send shockwaves through the system with a possibility of that country to leave the Euro and the Euro potentially to collapse/dissolve.
By the way, USA and UK are in a much worse shape. If the US was a corporation and audited, it would receive a triple C credit rating.