The Farcical Tragicomedy Of The "Sustainable" Greek Debt/GDP "Denominator"

Tyler Durden's picture

Somewhere in the deep bowels of Brussels bureaucratic labyrinth, a murder of European ministers (as they most closely approximate the Corvus Corvidae Genus/Species) currently sitting down and trying to come with a solution that "fixed" Greece. It will do no such thing: in fact, all that the Eurogroup is doing today, in addition to trying to do with it already did twice before without success, is to find a socially palatable way to disclose a policy that will see Greek debt haircut by a very modest amount ("unmodest" enough to be considered prohibited under Article 123, but who is counting any more), either through an outright haircut of official sector debt (something Germany has repeatedly said "9" to), or through a debt buyback of existing private debt (something which will have no impact now that the debt has soared following a long-running political leak which has allowed bondholders to trade accordingly). Aside for applying lipstick on a dead pig, what Europe is doing is focusing on the numerator in the all critical debt/GDP ratio. Sadly, this is just half of what Europe should be focusing on. The other half? Why GDP of course. Because it is here that things get truly hilarious.

As can be seen in the tables below which summarize the projections for the Greek economy, either with or without policy implementation that sees a debt cut, is that the country will halt that collapse in its GDP (which dropped more than 7% in the last quarter) and not only post its first rise in 2014, but grow by 3.9% in 2015, and over 4% each year after. Just as laughable a scenario face the Greek primary surplus: the country, where striking people go on strike from striking to really emphasize their point, and in which virtually no tax revenues are being created, is expected to see its budget deficit flatline in 2013 and somehow rise to a surplus well over 4% of GDP each year. Laughable? yes. Idiotic? Absolutely. Because if Greece achieves this, it will be the first country to have not only grown its GDP, but achieved a primary surplus in a time of deleveraging, because under Keynesian voodoo rules, a country's GDP can only grow if its debt grows in parallel. Which is why what will likely happen is that in 2022, when the latest set of Troika projections expect Greek GDP to be EUR255 billion, leading to a 115.4% debt/GDP ratio, that real Greek GDP one decade from today will be lucky if it has triple digits in it. But assuming a GDP flatline, which at least passably possible, for the Greek economy over the next 10 years, then debt/GDP for the doomed nation will be.... 160% in 2020!

  • In summary: Greek 2022 debt/GDP will be 115% if and only if Greece not only cuts its debt by EUR50 billion, but manages to grow its GDP by EUR60 billion.

One can see why the IMF wants to have nothing to do with this country which has long since become a parody of itself.

The tables showing Greek projections with and without a policy change:

And the full take of JPM's David Mackie:

The Euro group will meet for the third time today to try and resolve the Greece situation. The key issue revolves around medium term debt sustainability rather than near term financing issues. The need to agree on the medium term debt sustainability issue is about keeping the IMF on board the program, rather than sorting out the situation once and for all. Near term financing issues look likely to be dealt with via higher T-bill issuance.


The Euro group could reach a decision today if it is prepared to do a bit of everything. The first table below shows the situation out to 2022 without any areawide policy change. In this situation, Greek debt would be 147.9% of GDP in 2020 and 135.2% of GDP in 2022. The second table shows the impact of three changes: first, a 90bp reduction on the borrowing costs on the Greek loan facility; second, a €14bn EFSF loan to buy back €35bn of market debt; and third, the transfer of SMP profits to Greece. With these policy changes, Greek debt would be 130.6% of GDP in 2020 and 115.4% of GDP in 2022.


If the Euro group is able to agree on this, the next tranche of the second program will be released and the IMF will likely remain on board. But, the big question of a restructuring of official loans will still need to be answered at some point in the future. The debt dynamics in the tables below still assume ambitious fiscal numbers for Greece and solid nominal GDP growth. Greece is assumed to be able to run a primary surplus of 4.5% of GDP on an indefinite basis, and nominal GDP growth is assumed to average over 4%.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
fonzannoon's picture

ZH with the LOL to end an article. Nice.

GetZeeGold's picture



The Euro group will meet for the third time today to try and resolve the Greece situation.


Schedule a press conference....cause the third time is always the charm.


Why are the press corps laughing? I'm not joking.

CheapBastard's picture



The Euro group will meet for the third time today...for another 7 course dinner and champagne + cigars.

SheepDog-One's picture

'By 2022 115% debt'... gee pretty similar to the U.S. number today! Wow go for it Greece!

Water Is Wet's picture

By 2022, U.S. debt will be at least $26 trillion.  To the clowns holding treasuries yielding 1.6%, BUY BUY BUY.

Sudden Debt's picture

Just gotta find that pot of gold at the end of the rainbow...

but in a land where it hardly rains...


Oh regional Indian's picture

Just in case you want to understand the farce that is modern maths/economics, the root of the word denominator is the same as the root denomination, and all it means is to give a name.

Mean-ing, it's what you want it to be. Thus this massive farce, where rules are made up (or down) along the way...


denomination (n.) 
late 14c., "a naming, act of giving a name to," from O.Fr. denominacion "nominating, naming," from L. denominationem (nom. denominatio) "a calling by anything other than the proper name, metonymy," from denominare "to name," from de- "completely" (see de-) + nominare "to name" (see nominate). Meaning "a class" is from mid-15c. Monetary sense is 1650s; meaning "religious sect" is 1716.


SheepDog-One's picture

Well I just assume when they say debt/GDP is 120% its actually at least 300% or so.

q99x2's picture

Can't they just tell everyone that GDP is positive and smack them if they disagree. That is what I would do if I were a mean globalist bankster M'fer.

plaspotje's picture

come on ZH, everyone knows Greece  will pull this one of in no time,  just like the usa will be running a 500 billion surplus  and pay of its debt in 32 years

eigenvalue's picture

The European debt crisis has nix to do with economics now. It is only about politics. I don't think the current Greek government can last very long. A new election would be held in the coming months. 

Cast Iron Skillet's picture

a murder of ministers - cool. You could also go for an unkindness of ministers if you were looking at them as ravens. Or a bloat of ministers if you see them as hippopotami.

Collective nouns are for me one of the most imaginative and interesting parts of the English language.

WhyDoesItHurtWhen iPee's picture

Farcical ....... a delicious treat, just out of reach.

Gordon Freeman's picture

Yes, Greece is permanently fucked, and, yes, Europe will have to carry them in perpetuity, and, yes, the American taxpayer will help pay for it.  There's not a fucking thing anybody here can do about it, unless the heads of the EU, the IMF, and all the worlds CBs suddenly see the light.

These endless articles always want the reader to think some new perfidy has been discovered.  Give it a fucking rest--everybody knows what the fucking problems are...

Bahamas's picture

May be it is about time the gods come back to fix stuff

MiltonFriedmansNightmare's picture

Heaven helps those who help themselves, so.....

probably not.

TruthHunter's picture

Bahamas says "May be it is about time the gods come back to fix stuff"



1 : a god introduced by means of a crane in ancient Greek and Roman drama to decide the final outcome

2 : a person or thing (as in fiction or drama) that appears or is introduced suddenly and unexpectedly

and provides a contrived solution to an apparently insoluble difficulty

Should we invoke Bernanke or Banzai?

Rainman's picture

You know you are Greek when you are 5'4", can bench press 325 lbs, shave twice a day and still cry when your mother yells at you.

Bahamas's picture

You know you are Greek when you are 5'4", can bench press 325 lbs, shave twice a day and still cry when your mother yells at you.

especially if you'r mother's name is Angela

MillionDollarBoner_'s picture

...and even more so if your name is Helena ;o)

Schlomo Bergstein's picture

I had a good lol myself when I saw 4% GDP projections in an age of peak oil.

Peter Pan's picture

4% growth is not out of the question if Gdp collapses by 100%.

OneTinSoldier66's picture

I'm not sure I get it. IIRC, many many moons ago(shortly after the debt crises started) that EU "Leaders" said the crisis was fixed. Was I lied to?


I mean, I've been told all my life by politicians that politicians never lie, and that for Government to be able to do anything wrong when it comes to money is unpossible.

Dareconomics's picture

In the first part of this post (, I noted that troika projections of future Greek GDP growth had become more generous over time in order to maintain the illusion of a “sustainable” 120% debt to GDP ratio being achieved by 2020. Today, I would like to examine how these unrealistically rosy projections are hiding the certainty that Greece will default on its debt. The Greek bailout talks today are merely advancing a cynical plot by the German government to delay the default so that it may secure victory in upcoming elections.

From Zerohedge, note the highlighted areas in the chart below:

After bottoming out in 2014, Greece isexpected to average over 4% growth for eight years in a row. To place this in context, economic powerhouse Brazil has only averaged 3.18% growth over the last 20 years. This forecast materially affects all the numbers in the troika’s assessment.

Here is Greece’s recent performance:

Historical Data Chart

The country has not grown at even a 1% in years. If we change Greece’s growth rate to 2% per year from 2014 to 2022, a more realistic picture of Greece’s debt to GDP ratio emerges. Using the standard compound growth formula, Greece’s GDP rises to only €222bn by 2022. This means that Greece’s Debt to GDP ratio will be 132% in 2022, all else being held equal.

However, all else will not be equal. If we reduce Greece’s revenues in line with the reduction of GDP growth, the government will lose about €20bn in tax revenues over the period in question. Adding that to Greece’s debt in 2022 makes €314bn euro in debt divided by the GDP of €222 gives us a whopping 141% ratio.

My assessment is more realistic than the troika’s but still very optimistic. There are only two conclusions that follow from this data. Either Greece will default, or it must become permanent ward of the troika with permanent financing being provided by the Eurozone and ECB with occasional grants to cover shortfalls. I really do not see the northern tier agreeing to make Greece its dependent; hence, the country will be allowed to default at a time when it is convenient but not until after German elections.

Full post with charts here: