The Real Story Behind Greece (In Charts)

When you get to the heart of the matter with Greece as you will see in the following charts, it truly is about the European Union’s survival. The Greek story may just be the beginning of the end.

First let’s look at some details on Greece.

Spending has outpaced revenues for 35 years (figure 1).

The major problem is Greeks owe their government €76 billion ($86 billion) in back taxes, roughly 35% of GDP.

Deficits have pushed the Debt/GDP level to 175%, a ratio that has risen even more due to EU austerity measures.

Spending restraints have helped push Greece into a primary budget surplus (figure 3). But it has also resulted in GDP falling faster than debt levels. The prescribed cure has made the patient sicker.

Even if the Greeks sustain a 3% budget surplus (figure 4), it would take 30 years to bring their Debt/GDP down to a reasonable level of 85%.

The reality is the significant drag on growth when Debt/GDP levels move beyond 90%.

The following charts illustrate this issue.

For more details read the attached paper by C. Reinhart and K. Rogoff … Growth in a Time of Debt.

So the real story behind Greece is what lies ahead for Italy, Spain, and Portugal. All 3 have Debt/GDP levels above 90%. It’s been suggested many times that whatever happens to Greece will set set the precedent for how the EU treats Italy, Spain, and Portugal. The reality is the EU can’t afford to bailout Italy, Spain, and Portugal. Greece won’t be a precedent. Greece may simply be the beginning of the end for the European Union.