Washington Post
July 23, 2012
Does Europe need another week full of panic? Not really. But that seems to be on order anyway. Spain’s borrowing costs are already rocketing to unsustainable levels as investors worry that the world’s eleventh-largest economy is mired in endless recession with no chance to ease its debt burden. And, if that wasn’t enough, there’s now renewed chatter that Greece might get kicked out of the euro zone.
Greece’s problems look severe. To date, the country has received pledges of €240 billion ($291 billion) in rescue aid from the European Community, the European Central Bank and the International Monetary Fund. In return for that assistance, however, Greece was supposed to whittle its debts down to 120 percent of GDP by 2020.
It’s never been clear what the rationale behind this target was. At the time it was proposed, many economists called it arbitrary and unrealistic. Greece is already trapped in one of the worst depressions in modern history. The government is under intense public pressure to ease up on the €12 billion in planned tax hikes and spending cuts in 2012. What were the odds that Greece would ever meet this goal?
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