Stournaras, the Greek finance minster has done an interview on BBC stating that believes Greece will return to growth at the end of 2013 and why 2014 will be a year of positive growth “100% sure”. Let me tell you why he is mistaken.
Its going over old news but let me repeat why the depression in Greece will continue
The plan is for the Greek government to repay 50 billion Euros of debt by 2020
The Greek government has pledged to cut spending by at least 1 billion Euros a month by 2020
Greece has a 1 billion Euros a month trade deficit.
These things combined will mean the Greek economy will have 250 billion Euros less value by 2020.
The Greek economy as of 2012 is valued at 270 billion Euros (Annual GDP)
In short the Greek economy will be worth 20 billion Euros in 2020, or 80% less than in 2012.
The maths are simple.
What could happen to return avert this catastrophic course?
There is only one obvious answer. A government default. Call it debt forgiveness if you want the fact remains the Greek government would have to default on a large portion of its debt. A huge reduction in debt repayments would keep the equivalent amount of money in the Greek economy.
The slashing of interest repayments would allow the government to cut taxes which in turn would improve the efficiency of the Greek economy which in turn would go a long way to redressing the trade deficit.
The slashing of taxes would also offset the reduced government spending.
The answer is simple and it is inevitable the only question is how far the political elite in Greece and Europe are prepared to go before accepting the inevitable truth.
Of course there is one other thing that could happen, it is extremely unlikely but let me include it anyway. It is possible that bank lending to the Greek private sector will make up for the money that is being sucked out of the economy. Given that there is no sign of banks lending in any meaningful way at the moment I do not see this changing in the near future.
Here is the video