May 13, 2011
Greece, Ireland and Portugal, the euro region countries that needed 256 billion euros ($366 billion) in emergency aid to avoid default, may all see their debt loads exceed the size of their economies this year.
Greece’s debt, already the biggest in the euro’s history at 143 percent of gross domestic product last year, will jump to almost 158 percent this year and 166 percent in 2012, the European Commission said today in Brussels. Portuguese debt will surpass total economic output for the first time this year, growing to 101.7 percent of GDP, while Irish debt will reach 112 percent, the forecasts show.
As European Union officials consider boosting aid for Greece a year after its 110 billion-euro bailout, today’s report shows little sign of debt levels becoming more manageable. Soaring borrowing costs have left the three nations shut out of financial markets with investors increasing bets that Greece will become the first euro member to default.
“The market has realized that there are no short term solutions particularly for Greece and Portugal and some kind of restructuring is likely in the end,” said Marco Valli, chief euro-region economist at UniCredit Global Research in Milan. “The debt dynamics are very difficult to sustain.''
The cost of insuring Greece debt against default reached a record 1,371 on May 9, and its two-year bonds now yield 24.7 percent, almost 10 percentage points more than its 10-year debt, indicating investors may recover only a fraction of their principal.
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