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Greece's bail-out only delays the inevitable | FT.com / Columnists / Wolfgang Munchau

The European Union finally agrees a bail-out, and the much-predicted rally of Greek bonds turns into a rout. A week later, spreads on Greek bonds had reached their highest levels since the outbreak of the crisis. The financial markets have recognised that, bail-out or no bail-out, Greece is in effect broke.

The bail-out prevents a default this year, but makes no difference whatsoever to the likelihood of a subsequent default. Just do the maths: Greece has a debt-to-gross domestic product ratio of 125 per cent. Greece needs to raise around €50bn ($68bn, £44bn) in finance for each of the next five years to roll over existing debt and pay interest. That adds up to approximately €250bn, or about 100 per cent of Greek annual GDP.

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On my calculations, we have already gone beyond the point of no return, and should no longer focus on whether we can avoid default but on how best to manage it. Will it be an orderly process, or are we looking at default of the messy Argentinian kind? ...



The point is not to be right, but to get to right.
by marco on Mon Apr 19th, 2010 at 02:01:03 AM EST
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