Greece and its creditors are well into extra time; so far Athens has scored all the goals, mostly in its own net. Its 2013 budget shows that the country’s continuing economic depression renders every fiscal target unachievable, whether the debt ratio, the primary surplus or privatisation revenues. Political factors at work in both Germany and Greece mean the existing halfhearted “rescue” will probably be extended by up to two years – at a cost of another €30bn in financial aid. But make no mistake. Another Greek debt write-off is coming. It’s just a question of when.
The extent to which Greece keeps missing its targets is starting to beggar belief. For example, the budget projects that the country’s debt will be a few basis points short of 190 per cent of gross domestic product next year – 10 percentage points higher than forecast a month ago. Moreover, getting parliament to approve the budget and its attendant structural and fiscal reforms next week will be tough: the coalition is bitterly divided on the measures.
There are excellent reasons for not giving Athens any immediate relief from its thankless task, however. Greece achieves structural and fiscal reform only under intense external pressure. Offering a premature writedown would remove that pressure and set a troubling example for other highly indebted countries. Ireland’s debt to GDP ratio is climbing towards 120 per cent, for example; Italy’s is already there.