Wall Street Journal
May 1, 2011
Companies can have two kinds of debt problems: those that can be solved with revenue increases and cost cuts, and those that only a restructuring can remedy. If Greece were a corporation, not a sovereign debtor, it would be faced with the latter.
Stated in corporate terms, Greece's main issue is core operating losses. The country's primary deficit, which excludes interest expenses, totaled €2 billion ($2.96 billion) in 2010, according to Ministry of Finance projections released in mid-April (the projections exclude the impact of any fiscal intervention over the next five years).
Given a revenue base of about €92 billion, that might not look overwhelming to a corporate turnaround artist. Boost revenue by a little over 6%, cut expenses by the same amount, and you are nearly out of negative territory.
This might even be feasible, with a little help from an upswing in the economy. But Greece had a 2010 fiscal deficit—the primary deficit plus interest expenses—of over €25 billion, due to a gross debt burden of more than €300 billion. To stop bleeding money, executives now must push revenue up 12% and cut costs by the same amount. This might be conceivable for a corporate chief executive. However, in the business of running a nation, as you cut spending, you take a short-term hit to economic growth, and therefore revenue (i.e., tax receipts).
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