Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom


Greece fears bankruptcy

The Fitch rating agency on Tuesday downgraded Greece’s long-term debt ratings as well as those on four of the country’s largest banks, describing prospects for Greek public finances as negative. Greece is now exposed to the risk of losing the small amount of credibility it still has in front of its creditors. The concerns are growing about its ability to pay its huge public debt, estimated to 110% of GDP and budget deficit above 12.7% of GDP. A look at the evolution of the external debt of Greece is illustrating the concern of credit rating agencies and international financial markets:

YearDebt - externalPercent Change
2003$63,400,000,000
2004$65,510,000,0003.33 %
2005$67,230,000,0002.63 %
2006$75,180,000,00011.83 %
2007$301,900,000,000301.57 %
2008$86,720,000,000-71.28 %
2009$504,600,000,000481.87 %

Source: CIA World Factbook

The average debt per inhabitant is 20 479 € (while the EU average is 15 397€), which almost equals the annual GDP per habitant – 21 786 € (Source: Eurostat, 2008 data). Greece’s finance minister George Papaconstantinou says the new socialist government had inherited the debt, but he is confident that Greece’s finances would not worsen under the new regime. Greece also has the lowest credit rating of all the euro zone countries and it has to finance its government debt under terms which are worse than for any other euro zone country, with the exception of Malta. Despite government’s unshaken optimism, it is highly probable that Greece slides down into a serious financial and economic crisis because of its lack of financial discipline.

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