I’ve posted before on the problems with Greece’s debt and its implications for the European Union and its member nations. Today a deal with respect to Greece’s debt problems was announced; it involves pledges of support for a financing plan by EU countries and lending from the International Monetary Fund.
Looking at the deal that has been struck, it seems calculated simply to calm the markets for the moment and stop, or at least slow, the headlong slide of the Euro against other currencies. If the markets aren’t calmed, don’t be surprised if another European summit is needed. The deal also does not address the political fissures exposed by the Greece debt crisis, with German citizensm, for example, feeling like the ant being asked to subsidize the grasshopper.
Two points in the linked article are of particular interest to those of us in the States. The first is the notion that Greece is having to refinance its debt at a 6 percent interest rate because of investor concerns about its ability to repay the debt. If investors were to be similarly insistent on higher interest rates for American debt, our budget deficit, and the amount of our spending consumed by debt payments, would skyrocket. That is a sobering concern. The second point of interest is the chart showing budget deficits as a percentage of GDP and overall debt as a percentage of GDP, in Great Britain and certain European countries. The picture is not a pretty one, and suggests that Greece may just be the first of a series of European countries to face severe debt problems.