Samstag, 24. April 2010

Reining in Europe's Debtor Nations

Hans - Werner Sinn:

Hans-Werner Sinn is Professor of Economics and Public Finance, University of Munich, and President of the Ifo Institute. 

MUNICH – The eurozone countries have now agreed to provide some €80 billion in cheap loans to Greece over the next three years, and hope that the International Monetary Fund will provide another €15 billion at the least. But the interest rate that Greece must pay buyers of its government bonds has shot up to a record-high level of nearly 9% – 5.9 percentage points above the benchmark rate paid by Germany. That translates into an additional €16 billion per year in interest payments on Greece’s current debt of €273 billion. Obviously, markets still believe that Greece will default on its debt. 

Greece, moreover, has another huge problem: its current-account deficit is currently a whopping 13% of net national income, which means that €27 billion have to be financed annually by borrowing or selling Greek assets. With international investors no longer willing to finance this deficit, and even shying away from refinancing existing Greek debt, only three possibilities remain. 

Copyright: Project Syndicate 2010 

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