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Will European bailout actually help Greece debt crisis? Maybe not.


Details of Greece's plan to wipe out its crippling debt -- with the aid of $56 billion from its reluctant European neighbors who are choosing to not get dragged down with the overspending little nation -- suggest that although Greece's debt could be quickly alleviated, the bailout could lead to worse problems.

According to the latest numbers from Greece and the European Commission, if the rescue plan is implemented right away, here's what it will do to Greece's deficit-to-GDP ratio, which is more that four times what the European Union allows:

2009: 13.6 percent
2010: 8.7 percent (though this number could end up higher)
2011: 5.6 percent
2012: 2.8 percent

Okay. That looks good. That gets Greece's balance sheet back in first-world order, which means it will be able to borrow money at reasonable rates and sell its own bonds at competitive rates.

However, take a look at what will happen to government spending as a percentage of GDP if the plan is put in place:

2009: 50.2 percent
2010: 50.6 percent
2011: 49.1 percent
2012: 47.8 percent

And take a look at what the projected revenue-to-GDP numbers look like:

2009: 36.9 percent
2010: 41.9 percent
2011: 43.5 percent
2012: 45 percent

How do you raise government revenue? New and higher taxes. You may argue that Greece's GDP will rise under the bailout plan -- and it will -- but the economy will actually contract at a 2.3 percent rate this year, the data show, and the blue sky shows only a modest 1.9 percent growth in 2012. The answer is probably new taxes.

And what happens when you cut government spending? Entitlement programs go away. Greece is an entitlement nation. I told you earlier today that most Greeks retire at 61. A sense of entitlement has been baked into this nation for decades. You don't change that overnight. When you do, you get riots of the sort we've seen in the nation.

These are the sort of strict provisions that will come with a European bailout, which German Chancellor Angela Merkel spoke of earlier today. Combining higher taxes with sustained cuts in services and entitlement programs that are viewed as a birthright is a socially explosive mix.

While I'm at it, let me toss a little more gasoline on this fire. Look at the unemployment-rate projection under the bailout plan:

2009: 9.5 percent
2010: 9.9 percent
2011: 10.5 percent
2012: 10.5 percent

So, to recap: The bailout plan will quickly wipe away Greece's debt problem, but quite likely will lead to further social unrest, as it will cut entitlement programs, raise taxes and actually cause unemployment to grow. London's Telegraph says the bailout will buy Greece only one year.

The sad truth is, Greece has done such a poor job managing its economy for so long, there are few choices left than what's being offered. At the worst, the bailout program could create perpetual turmoil in the streets of Greece, which would kill one of its greatest assets: tourism. The best Athens can hope for now is a peaceful deflation until it can become a working nation again.

Follow me on Twitter at @theticker.

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By Frank Ahrens  |  April 23, 2010; 4:55 PM ET
Categories:  Deficit/debt , The Ticker  | Tags: Angela Merkel, Chancellor of Germany, Debt, European Commission, Greece, Gross domestic product, International Monetary Fund, Money, greece debt crisis  
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These stories about Greece debt etc. are essentially nonsense.
You want the FACT, here is a FACT you can count on:

European union, of which Greece is a very small part of, will continue to get richer and richer compared to American Union (aka USA) as evident by how MUCH MORE valuable Euro is compared to US Dollar.

Because Europeans are not suffering from a party of Lunatics as US is with the Republican party and Europe is not suffering from a right-wing (aka Lying) war-mongering media as US is with such lying machines as Fixed news, Talkradio, Wall Street Journal, CNBC, etc. etc., as a result of which:
1- European Governments invest much more of their People's money (Taxes) in their people and cities via such things as Universal nationalized health care, Universal education to Ubiquitous (electric powered) public transportation etc.
2- European Governments do not waste their people's money on Unnecessary Wars (Iraq War, Vietnam War, etc.) or on a Gargantuan Military

So Euro is KING and will continue to be KING, will continue to be MUCH MORE valuable to the US Dollar, as long as the above problems (FACTS) with US exist. More on these points here:

You can bank on the above statement as being FACT.

Posted by: RealNews1 | April 23, 2010 6:51 PM | Report abuse

How is the new debt going to differ from the old debt? There's nothing that gives a man spirits like going at full speed. Clearly the Greek economy is slowing down because it can't pull its load, so loading up with more debt will only slow it down more and speed up unemployment
2010: 9.9 percent
2011: 10.5 percent
2012: 10.5 percent or higher maybe
Retire more debt and keep working to speed up economy. The quick and the dead or in this case the slow and the debt. It buys a year and then things really slow down because debt causes inflation and they are out of money again while everything costs more which is somehow a German problem when it isn't a French problem because the loans can't be repaid because there is too much Greek debt. There was too much or not enough to start with.

Posted by: tossnokia | April 23, 2010 8:48 PM | Report abuse

By the way Frank Ahrens-

I read faces well

I like your face.

I feel you are probably a really intelligent - FUN - person - and no doubt serious when need be- but I did see this line from Plato the other day on the necessity for comedy in the face of seriousness !

your eyes say - SERIOUS - CAPABLE INTELLECTUALLY - and your mouth - I DO see a fractioned smile there- no doubt a good sign !

I like this article- I think it's the TIP of the iceberg considering EU's problem with Spain next-

I can see the members of the EU going "Oh god - we didn't PRICE Spain bailout in- "

Odd- US bails out global financial corporations - EU ? gets stuck bailing out nation states.

My best guess?

Bank of America in the end holds enough power to bail out the governments - BUT that's ONLY IF they feel it's not TOO RISKY A LOAN !

heh heh

and not so funny

Tim Miltz

Posted by: RedMercury | April 23, 2010 9:08 PM | Report abuse

P.S. Frank Ahrens

I understand you may not publish my long winded first post there...

You are welcome to fish out anything you want - I don't really believe in ownership or IP on ideas- but I THINK I'm dead on reagarding future of EU after Spain's problems come to light - and I think as well with Lehman - considering their lions share on other governments bonds... as to Paulson's REAL intent.

I'm ONLY after the truth - and ANY minds that can help bring it clearer ? closer ? Hats off- it's all a collective effort -

You might write me off as a loon - heh- that's okay - I like you thought, and your columns.

Tim Miltz

Posted by: RedMercury | April 23, 2010 9:11 PM | Report abuse

Greece can't restructure debt because Greek banks hold so much government debt. So the situation is clear as night, have the German banks hold more debt to keep the banks open in Greece who are going bust because of government debt that can't be paid. Good luck to the Germans in ever getting paid. This went from a three box game to a modified three box game and the bottom dropped out of two boxes. The other box is empty and if filled, chances are the bottom will drop out of it. It will only take a year so just send more boxes of money and they'll spend them. Send me a box of money and I'll go shopping in Paris to keep French banks open and I'll send you a boxed hat as a thank you. I'm staying out of Greece.

Posted by: tossnokia | April 23, 2010 9:39 PM | Report abuse

One of these just passed by
Neat exhaust note.

Posted by: tossnokia | April 23, 2010 9:50 PM | Report abuse

P.S. Frank Ahrens

I understand you may not publish my long winded first post there...

You are welcome to fish out anything you want - I don't really believe in ownership or IP on ideas- but I THINK I'm dead on reagarding future of EU after Spain's problems come to light - and I think as well with Lehman - considering their lions share on other governments bonds... as to Paulson's REAL intent.

I'm ONLY after the truth - and ANY minds that can help bring it clearer ? closer ? Hats off- it's all a collective effort -

You might write me off as a loon - heh- that's okay - I like you though, and your columns.

I still say, hey, if the EU is struggling this hard to rescue Greece? How are they ever going to rescue Spain.

Unites States to some degree is responsible here.

In ways ? the US SEC and DOJ LAX policies on Wall Street's insolent greed has cost the entire world economy - and without question - cost us Greece and Spain if you ask me.

Tim Miltz

Posted by: RedMercury | April 24, 2010 5:56 AM | Report abuse

I think close watch on Greece and Spain here regarding the EU is a REAL big story.

All of a sudden - it's not global financial corporations revealing themselves as systemic (surely such corporations play ROLE in the nations demise) - but now ? NATION STATES themselves in my view are starting to show systemic risk to the EU.

And the EU itself can show systemic risk to the US economy as well down the road.

BIG story here if you ask me - I hope the author keeps up on it.

Tim Miltz

Posted by: RedMercury | April 24, 2010 8:32 AM | Report abuse

The US is one of the largest contributors to the IMF. So when the IMF uses those funds to bail-out Greece we are bailing them out. The IMF was set-up to provide funds to Third World Nation's. Greece is now a Third World Nation? The same problems exist in Ireland, Italy, Austria, Spain and Portugal. The dominoes are going to start falling.

This is also the Ghost of Christmas future for the US. JFK made a horrible mistake signing an executive order allowing federal government unions. We need to ban government unions. The same problems in Greece are not far off for California, Illinois, New York, New Jersey, basically any State with a progressive democratic legislature with large government unions. Just a matter of time. Expect to see more cities going to bankruptcy court like Vallejo in California.

Meanwhile Obama and his buddies in the unions are spreading their cancer as fast as they can.

Posted by: Bubbette1 | April 24, 2010 1:47 PM | Report abuse

Greeks retire at the same age as Germans. 61.5

Those are the facts.

Retirement age for social security and gov't workers is 65.

Posted by: Dan25 | April 26, 2010 11:49 AM | Report abuse

How come no one discusses corruption in Europe as being the prevalent factor in Greece's debt bomb?

Greece gets blamed for a bloated bureaucracy, and it has one, and it could certainly restructure, but if you do the math, 440k bureaucrats making an average of less than 20k a year... well, they could never run up a bill of 300 billion in debt.

Greece suffers from corruption, and the entire EU enterprise is corrupt in the sense that there's a lot of payola for political favors. Greek politicians took so much money from European corporations and governments in return for the approval of projects. And I can name at least 100 billion worth of deals that did not add value for Greece (in terms of a sustainable economy), things such as the Olympics (Greece's fault, 18 billion), or submarines, tanks, eurofighters (over 50 billion in the last decade), or a couple of world class superlong Bridges to Nowhere (4 billion). Thyssen Gruppe is reported to have bribed Greek officials in the amount of 83 million euros for the approval of buidling submarines in the many billions. Sure, the politicians were caught, they'll go to jail, but the bribes happened, the debt added, and people elsewhere profited from the building of totally useless projects. The great part of the debt went not to average Greeks who are scratching out a living, but to corporate and bank welfare across Europe. Those who profited from Greek debt should be the ones to pay.

I'm not absolving the Greek bureaucracy since it's at a high level and unhealthy for the nation, but they could never get Greece into the level of trouble it's in currently.

If Greece could change the level of corruption, their economy is more than viable.
Just some quick numbers on this:

440k bureaucrats
Less than 20k average salary
275 billion euros debt
250 billion euros GDP
40 billion gov't budget
Annualized gov't yearly deficit of 6% over the last decade

These are the figures I used to conclude that Greece's corruption problem is the significant factor.

Posted by: Dan25 | April 26, 2010 11:50 AM | Report abuse

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