Friday, September 21, 2012
Europe's Sovereign Debt Problem Is Not Over Til It's Over
September 21, 2012
Even before the current Greek PSI, everyone knew that Greece would need massive debt relief. Before the recent Greek haircut, total Greek debt was about 380 billion euros. After about 100 billion euros in sovereign debt write-downs, current Greek debt today stands at around 300 billion euros. For a 200 billion euro economy (if not less), Greece's Debt/GDP ratio is still at 150%. Under no circumstances is Greece's debt sustainable.
Yesterday, as reported by Reuters, the CEO of Commerzbank (CRZBF.PK) said Greece needed another haircut. This is no surprise to many, including myself. I was calling for about 200 billion euros in Greek debt relief months before the latest haircut took place, in order for Greece to have a chance to be solvent.
Please recall that I am of the opinion that Greece will not leave or be kicked out of the eurozone. I am still of this opinion, for there are no alternatives. Even if means many more Greek haircuts and even if eventually Europe has to conceive some kind of a Marshall plan for Greece, it is preferable on a cost benefit analysis basis to keep Greece in the eurozone. However, even if Europe does indeed solve the Greek problem and soon, there are still many issues ahead.