Politicians and the legacy media are crowing about the plan to address Greece’s persistent problems (even though much of the plan amounts to making official the write-downs of Greek bonds that private investors have already booked).
Here’s Luigi Zingales, a big-time international finance researcher from the University of Chicago (he’s one of those MIT graduates from my January post that’s networked at the top levels):
On the face of it, the "voluntary" arrangement with creditors might appear to have been a big success. …
But, despite these trumpeted results, the reality is much harsher. Even with the latest deal … the debt ratio would exceed 130% before stabilizing at 120% in 2020.
But even this reduced level is not sustainable. … the government would need to run an annual 2.6%-of-GDP primary budget surplus (the fiscal balance minus debt-service costs) for the next 30 years just to keep the debt burden stable.
To put that task in perspective … To reduce the debt-to-GDP ratio to 70%, Greece would have to maintain an average primary surplus of 4% for the next 30 years, a level that it has temporarily achieved in only four of the last 25 years.
I’m a bit harsher on Greece, but it’s consistent with the view I’ve given in class that anyone in their right mind should expect Greece to be a recurring problem.
Read the whole thing in the “Notable and Quotable” section of The Wall Street Journal’s March 19 op-ed page.
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