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When It Comes To Total Debt, Greece Is Not That Much Worse Than France (Or The USA)
Now that even the IMF has admitted Greece has an unsustainable debt problem with a debt-to-GDP ratio which will soon cross 200% after its third bailout (even if it leaves open the question what the IMF thinks about Japan's debt "sustainability") we wonder what the IMF thinks when looking at Greece's net government liabilities, which as SocGen's Albert Edwards reminds us are rapidly approaching 1000%.
Which incidentally means that Greece is only marginally better than the USA, whose comparable net liability is a little over 500%, while its other nearest comparable is none other than France, whose next president may will be "Madame Frexit" and whose biggest headache will be how to resolve government promises to creditors and retirees that are five times greater than the country's GDP.
Still, surely those "in control" are fully aware of all this, and are taking measures to contain it once the Greek debt fiasco spills over beyond Greek borders and returns to the European periphery or, worse, slips into the most unstable core nation of all: France.
Here are Albert Edwards thoughts on how this particular crisis would play out, considering it was none other than France that did not push for a bigger debt haircut for Greece:
I was not in any way surprised that Germany was able to gather a huge number of allies to its camp, with its traditional fiscally conservatively minded allies such as Finland, Holland and Austria, as well as many central European governments. I was not even surprised that other countries previously crushed by austerity, Spain, Ireland etc., were firmly in the Germany camp too. But I was really surprised that French authorities did not stand up to say what was happening was unacceptable, unsustainable, and indeed unfair, and that they would have no part of it.
France instead facilitated a resolution of the impasse, acting as ‘good cop’ to Germany’s ‘bad cop’ routine and helping the Greeks to draft their proposals. The Wall Street Journal quotes one German official “The French smoothed the way so that the Greeks could walk, and then we pushed a bit.” Many critics of the deal would instead say the Greeks have indeed been walked to the edge – the edge of a cliff - and then pushed a bit.
The reason why I am surprised that France went along with this extreme and humiliating austerity programme – and the effective removal of sovereignty forced on Greece – is simply its own self-interest, for France could itself end up in the firing line. The problem France will surely find further down the road is that its own debt dynamics and sustainability is also highly questionable. Estimates we have used before with calculations for the present value of unfunded liabilities (as a % of GDP) show that actually it is not Spain or Italy that have the worst long-term debt sustainability issues; it is the US and France, and then next in line, surprisingly, Germany (see chart below).
Although on a much smaller scale to the problems faced by Greece, unfunded government liabilities elsewhere are still a genuine problem. We are not talking here about the on-balance sheet government debt to income ratios – although on that basis Italy’s situation looks dire. But dire though Italy’s situation is, once you add in the off-balance sheet liabilities, which are only now coming onto the balance sheet as populations rapidly age, it is even worse for the US, France, Germany and the UK, in that order.
A combination of inflation, defaulting on pension and medical promises, and severe fiscal retrenchment is the likely response. But, for the US and the UK, we have had a glimpse of where this will end – QE, devaluation and the printing press. Within the eurozone, the vision of austerity as a remedy to fiscal excess, as shown in the Greek settlement, shows that austerity and ‘reform’ will be the likely route imposed from above. Germany has huge overseas assets accumulated via persistently large current account surpluses to call on to pay its unfunded bills. Germany had net overseas assets of around 50% of GDP last time I looked, whereas France does not have this huge well of assets, and indeed is a net debtor by around 20% of GDP. Hence it was France’s own perilous fiscal situation that left me most surprised that they did not make a strong stand that the Greek ‘agreement’ was wholly unacceptable.
We disagree, and find it far less surprising: ultimately Hollande's sole focus was to preserve near-term stability (and his job) at any cost, if only until the 2017 French elections, which he is guaranteed to lose. Even if the French fiscal and solvency situation deteriorates dramatically over the next two years (and it will because as we showed in June, France has now had 80 consecutive months of record unemployment as a result of yet another socialist economic failure), by the time the world wakes up it will be someone else's problem, most likely that of Marine Le Pen, at which point the only way to resolve the French "problem" will by through the printing of French Francs (something Greece will likely have been doing for a while using its own currency the Drachma following its own inevitable exit from the European monetary prison).
Because one look at the chart above and everything should be clear: there may be stability now, but once the current generation of workers retires and realizes its entitlements and retirement benefits were a big fat lie, it will have two choices: violence or printing. We tend to think it will choose the latter.
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Greece is being used to help prepare America for the final act. The dollar is on its way out and the US debt is unmanageable despite the ongoing lies to the contrary!
That’s the issue, the upcoming monetary shift isn’t going to be the end of the world, but there will be winners and losers. The losers will be anyone who is depending on value being returned after having lent the government money or depending on benefits promised from the government.
U.S. is number two. Woo, hoo!!! We can do it. Spend, SPEND, SPEND!!! Gugmint promise, GUBMINT PROMISE, GUBMINT PROMISE!!!
U... S... A...
U... S... A...
U... S... A...
U... S... A...
U... S... A...
My share of the total national debt is probably about $250K. I also fully intend to collect $200K in in Social Security and cost the government about $200K in Medicare expenses. I will hereby offer the government a terrific deal: Cancel my part of the debt and give me nothing in the future.
I'd take that as well. Although I no longer want to pay roughly $15,000/year in S.S. taxes. I'll save/invest for my own retirement.
At this juncture in history, Tsipras should demand the return of the Elgin Marbles to the Parthenon.
These literal embodiments of moral high ground returned to the Acropolis itself would put the entire historical situation in better relief.
And the Turks should pay damages for blowing up the Acropolis.
Sorry guys, what Hollande is doing is not socialism.
If you wanna know what "socialism" mean, read Jaurès
France's 10% unemployment is testament to welfare state insanity
The US "5.5%" unemployment rate is testament to the mendacity of the BLS.
Bastille Day will always arrive as a surprise to the elite, even after three years of famine.
Can somebody explain this chart to me?
But, France and the U.S. have Nukes.
STORE FOOD AND WATER NOW!
All the MOAR reason for Greece to tell TROIKA, IMF, ECB to "fuck ~off", and have at it alone.
If it was so EASY!... Everyone would be doing it.
Set an example Greece.
Show those goat fuckers, that they can't churn your cheese.
The southern tier of Europe operates on a completely different business cycle, as opposed to the northern European collective.
Southern Europe is agrairian. Look at southern Italy and France. Rome is a shithole!
What? Greece is $18 Trillion in debt like the US? Wow.
1.6T. Doubt it.
Don't want to doubt Albert Edwards.
But source of data? Need to see it to beleive US > 500%.
China probably close?
who cares as long as you can print print print and add more zeros, we can print that debt tomorrow and have it done by monday!
Never underestimate the capacity of clueless morons to subjugate themselves to the certainty of abject poverty and statist repression rather than the natural uncertainty of freedom.
What will France do?
France will seek a "European" solution ie Germany and all other pay for them, worked for the last 50 years