Financial Times
April 13, 2014
While the financial world is celebrating the Greek return to the bond markets, I am asking myself this question: is this a good time for Greece to default on its foreign debt? It is not a subject of polite conversion in Brussels or Athens. Nor does it appear to be a popular subject for investors’ conferences.
For the first time since the crisis Greece is in a position to default. It has a primary budget surplus – before interest payments. The European Commission has forecast the primary surplus to reach 2.7 per cent of gross domestic product this year, rising to 4.1 per cent in 2015. The Greek current account registered a first surplus. Greece is no longer dependent on foreign investors.
Of course, just because you are in a position to default does not mean that you should. So how should one think about this?
Greece is probably now close to the bottom of its economic slump, which started six years ago. Between 2008 and 2013 real GDP shrank by 23.5 per cent and investment by 58.4 per cent. The most recent labour force survey showed unemployment at 26.7 per cent in January. The rate of youth unemployment in 2013 stood at 60.4 per cent. Bank loans to businesses were down at an annual rate of 5.2 per cent in February. Non-performing loans have reached a level of 38 per cent of the total. Bank deposits are shrinking.
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