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Take Greece's 125% Debt-to-GDP. At 5% annual interest, that's under 7% of GDP in interest payments. That can be paid out of government revenue so we can assume Greece is not engaging in Ponzi finance. Not all of Greece's debt pays that interest since some of it was issued before 2007 when the yield the market demanded for its bonds was lower.

As for paying the principal, we get Munchau's 20% of GDP for debt service is we assume about 10% of Greece's bonds mature each year (13% GDP for principal plus 7% GDP for interest).

"Rolling your debt" means issuing a new batch of bonds to pay the principal on maturing bonds. That's speculative finance. It means Greece would issue maybe 15% of GDP each year in order to pay the bonds maturing that year.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Mon Apr 19th, 2010 at 04:40:04 AM EST
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