The latest Greek debt bailout talks have stumbled again and they've stumbled over the same old, old, problem that all of the previous ones have tripped over. Which is, very simply, how much of that debt will Greece not repay? The International Monetary Fund says that some good portion of it cannot be repaid, thus won't be, and so it should be written off. No point in continuing to impoverish an entire nation to no good end after all. Everyone else keeps insisting that no matter what they just can't do it. And thus what Sir Pterry used to call an imp arse.
The IMF is correct here by the way, the European politicians wrong but then we knew that was going to be the case, didn't we?
We can see what Greece's real problem is in a few charts. Here's the long term bond yield:
As we can see, the place essentially ran out of money, yields soared, then came the first bailout and so on. We've also the unemployment rate:
However strong or mild your version of Keynesianism that's an economy crying out for some fiscal stimulus, not a place which needs to be running a budget surplus nor shipping cash out of the economy to foreigners. And of course GDP has followed the unemployment, as it would if 25% of the population are producing nothing:
That is not inflation adjusted by the way, real incomes have done even worse than that.
This is an economy so far around the U bend that even professional dunnikin divers are having difficulty in making contact with it.
At which point we've the same old problem we've had all along. Just how much can Greece devote to debt repayment? That's the obvious question to ask if we want to know how much debt Greece can repay. As I've noted elsewhere there are two ways to do this:
The IMF thinks that Greece can run a primary budget surplus (the primary meaning before interest and debt repayment, the implication being this is the amount that can be used to pay down debt) of 1.5% of GDP for some decades. Run that forward and that means Greece can repay some portion but not all of the current debt.
Everyone else is a politician and a politician quite aware of the fact that they've lent their voters' funds to Greece. And they'd just hate for said electorate to find out that they've lost that money by so lending it. So they've cut the interest rate to near nothing (a few basis points over the ECB's current QE influenced very low rates on much of it) and extended repayment out towards the end of the century. Losing money through opportunity cost, inflation and interest not paid is less politically painful than cutting the capital sum. Even the dimmest voter on the Chemnitz Omnibus would cotton on to the loss if there was a reduction in the outstanding sum.
But this still leaves them coming up short - unless Greece runs a primary surplus of 3.5% of GDP. So, that's the demand. Not what can Greece achieve, but what must Greece achieve to save political positions?
Which is where the problem is. No democratic system can run a primary surplus of that size over time. It can be done for a year or two but sending that much of the economy off to foreigners just isn't going to happen over the long term. The only person we know of who did manage it was Ceausescu in Romania and they machine gunned him and his wife in the end.
Which is why the IMF is right. And yes, this is the reason this last set of talks failed yesterday:
Greek bonds are under pressure on Tuesday after the country’s creditors failed to reach a deal on debt relief and leaves the euro area racing to finish negotiations before crucial repayment deadlines come due in July.
It's the political question of when and how those losses on the Greek debt will be recognised:
Eurozone finance ministers have failed to agree a debt relief plan for Greece, raising the prospect of a summer crisis for the single currency bloc if Athens misses a loan repayment.
A meeting of the eurozone’s 19 finance ministersbroke up late on Monday night, amid a row with the International Monetary Fund about Greece’s debt burden.
The standoff came just hours after France and Germany pledged to deepen co-operation in the single currency and seize Brexit opportunities for their banking industries.
After more than eight hours of talks in Brussels, Greece’s creditors – the eurozone members states and the IMF – were unable to bridge their differences on Greece’s ability to repay its debts in the long run.
As I keep saying, the IMF is right here. Greece cannot repay all that debt and so it will not. All that is left is to recognise this, something politically unviable to the European politicians who lent the money. And thus does the Greek economy crumble, because of European politics.