[8]
Source: worldbulletin.net
Mark next week in your calendar as that’s when the European authorities (read: creditors) will start reviewing Greece’s progress [9]with regards to the reforms it had to push through in order to receive another bail-out package last summer.
This will be the first review since the bailout, and as Greece was extremely reluctant to push the reforms in the pension system of the country, as its lenders wanted the country to keep the average Greek employed until a higher age. Greece has submitted its proposals, but the main question (and fear) is that these plans won’t go as far as Europe would like them to.
This means Greece and the Eurozone leaders could be gearing up for another yes-no game and a prolonged period of ‘negotiations’ which could once again distort the Eurozone in yet another deep crisis. Yes, Greece did receive a first tranche of cash in the summer of last year, but it’s still spending quite a bit of cash as the country for instance has to cough up an interest bill of 1.4B EUR [10] next month.
[8]
Source: European Commission
But it does look like Greece could very well be a bottomless pit. We were able to review some documents from the European Commission which are providing some guidance as to where Greece could stand in 2020 and 2030, and we have provided the table above. The A-scenario is the base case scenario, and as you can see, even when you’re using the base case scenario, the Debt to GDP ratio would still be above 120% by the end of NEXT decade.
[8]
Source: wsj.net
We actually think the base case scenario is way too optimistic as it assumes a 2.7% economic growth rate in 2017 and an even higher growth rate of 3.1% in 2018. Well, we are pretty sure that isn’t gonna happen, so the B-scenario is actually more likely (and could still be too optimistic as it assumes an economic growth rate of 2.2% in 2017 and 2.6% in 2018, and a long-term continuous growth rate of 1.25%.
So even after pouring tens, no, hundreds of billions of euros into the Greek financial system, its debt situation will remain extremely ‘shaky’ at best. In fact, the European Commission is confessing this as in its ‘debt sustainability analysis’ it reported, and we quote:
‘a very significant weakening of commitment to reforms and backtracking on previous reforms and an overall climate of uncertainty have led to a significant deterioration of economic growth and fiscal prospects and hence of debt sustainability. […]The high debt to GDP and the gross financing needs resulting from this analysis point to serious concerns regarding the sustainability of Greece's public debt.’
So the European Commission now seems to see the Greece situation as almost hopeless and a bottomless pit (at best), but it still keeps pouring cash into this cesspit to extend the country’s death struggle.
Of course, everybody still tries to convince you that everything is going just fine in the world and with the world economy, but it’s starting to look like some people and banks are coming to their senses as for instance UBS issued a research report wherein it strongly recommends to increase one’s exposure to gold as the bank is calling the bottom in 2016 followed by a potentially huge upswing in 2017. As the world economy is evolving at an extremely fast pace and things seem to be unwinding very fast, 2016 might be a very bumpy year at best, and potentially a disastrous year for the equity markets, and it doesn’t happen very often to hear a financial institution expecting a 30% free fall on the normal markets.
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