It has been a while since Greece was at the top of the market news. We consider this is as a key issue for the European Union so we are still monitoring the country. It is now back into recession (printing two consecutive growth negative quarters) despite the massive austerity policies over the last few years.
Pension cuts or the increase in taxes do not seem to be sufficient and the cost of servicing the debt is way too massive so we do not see any positive issue on that. Greece cannot devalue its currency and so it is then forced to devalue internally, for instance its public aid (pensions in particular).
Since February 2015, Greece has repaid €35.4 billion and by the end of 2018 Greece must repay €28 billion (including €2.7 billion of interest). To put that into perspective, the 2016 nominal GDP was €176 billion. The economy must then expand by at least more than 1.5% next year. And next year repayments are less than half of what Greece will need to pay in 2019.
We don’t see how Greece will be able to reimburse this debt as it is clear that the country won’t be able to print a growth above the cost of servicing its debt. In the short-term, everything looks decent on the single currency side but what will happen when Portugal or Spain have issues as deep as Greece. Uncertainties are far from over on the euro side.
By Yann Quelenn