June 29, 2011
Amid strikes and violent public protests, on June 29th Greece's parliament voted in favour of the government's emergency package of austerity measures. The package, which requires a second vote to implement it on June 30th, is necessary. Without it, the European Union and the International Monetary Fund will not release another tranche of a large rescue loan to the country. And without the loan, Greece cannot afford to meet the interest payments on its monumental government debt. But because the package will bear down too heavily on ordinary Greeks without addressing necessary structural reform, it is likely to fail. Many other rich countries have big debt burdens and are facing similar problems. The chart below shows OECD calculations of what it would take governments to reduce gross debt to 60% of GDP by 2026. This is around the level considered healthy and is also the ratio set by the widely ignored Maastricht agreement, which is meant to govern debt in the European Union. It is not pretty.