Friday, October 9, 2015

Debt Service Capped At 15% Of GDP?

The Eurogroup is now talking quite openly about debt relief for Greece. Its Chairman Jeroen Dijsselbloem allegedly said that debt relief for Greece should be accomplished by capping its debt servicing costs at 15% of GDP annually.

Greece's GDP is currently around 180 BEUR and 15% of that would be 27 BEUR. So the above described debt relief would mean limiting Greece's annual debt servicing costs to 27 BEUR?

Someone isn't thinking so well here. Greece's debt servicing cost (i. e. interest expense) was 5,7 BEUR or about 3% of GDP in 2014, and that turned out to be more than Greece could handle out of its own resources. Where the heck is Greece going to get 27 BEUR from?

I suppose the term 'debt servicing costs' needs to be clarified. Normally, debt servicing costs are understood to be interest expense. The repayment of any maturing principal would be 'repayment costs' or 'refinancing costs'. Either way, there is no way that Greece can come up with 15% of its GDP to pay interest or principal or both. There must be a confusion there.


  1. This debt cap idea has been discussed for some time now, see e.g.

    As I understand, total debt servicing (interest + repayment of maturing debt) would be capped at 15% of GDP per year, i.e. might be less but never higher. According to the present interest+repayment timetable, it's less for the next several years but would exceed 15% from 2023 onward. Furthermore, as I understand, at least the interest part and "some" fraction of the maturing principal should be covered by budget surplus; the other fraction of the maturing principal could be rolled over.

    See eKathimerini article dd. 2015-09-17 referenced in my blog post above:

    quote> For 2015, the cost of debt servicing is estimated at around 11 percent of GDP, while for the next few years it is seen at between 6 and 10 percent of GDP. However, from 2023 onward the rate will rise above 15 percent due to the end of the grace period for the payment of interest. A eurozone official said yesterday that the threshold of 15 percent of GDP will allow the country to return to the markets as private investors will feel more secure in the long run.

    1. I suppose we will soon find out what is meant by the 15% but if the idea is as you describe in in paragraph 2, it doesn't make sense to me.

      The only debt serve where relief can be offered (and should be offered to Greece) is when it comes to the cost of the debt; i. e. interest. That should be capped, whereby I think a cap as % of tax revenues (out of which interest gets paid) is more meaningful than a % of GDP (you can't pay interest out of the abstract GDP number).

      Principal is a matter or refinancing; it is NOT debt service per se when it concerns a sovereign borrower. What could make sense would be to flatten out the annual refinancing requirement so that Greece never has to overburden the markets in any one year. But that has nothing to do with debt relief.

    2. Our sources are newspaper articles, i.e. notoriously imprecise sources when it comes to matters of economics and finance. I agree that we better wait and see how the Greek debt issue is dealt with.

      I understand the EU/EWG concern as follows. The challenge is not just technical, but mostly political... with little room for maneuver.

      (1) The reference Maastricht debt cap of 60% of GDP doesn't work; more than half of member states don't comply, without adverse consequences for most. Hence a new kind of debt cap is required, that could make sense for any member state, and now for Greece in particular. The cap should also be useful as a simple go/nogo indicator for debt sustainability, that is (hopefully) acceptable to the IMF, in order to get them on board for M3. Apparently it's thought that debt servicing or "gross financing needs", understood as interest + maturing principal (whether refinanced or not), capped at 15%, could fit the purpose (*). A fairly modest restructuring of Greece's debt, acceptable to creditors, would suffice to meet this cap.

      (2) The Greek state should be given enough "rope" to survive and learn how to swim within the euro context, but not much more. A new haircut (after the one of 2012) might lead to yet another round of "business as usual" in Greek politics, i.e. severe overspending on credit, in the expectation that the resulting debt would magically evaporate one way or another. The evaporation trick worked with a currency that chronically devalued at a rate of 10% per year or more (the old drachma), but that's not the kind of currency that the vast majority of European citizens would like. Also repetitive haircuts on Greek debt every three years or so are not quite what our eurozone finance ministers would be able to sell to their electorates.


      (*) It's indeed subject to debate whether that's a "good" indicator and how it should be called. Here is what eKath (2015-08-22) says on the issue

      eKath> The one [yardstick] increasingly favored by both the IMF and the eurozone is gross financing needs. This measures how much a country needs to find each year to pay interest and repay debt as a percentage of its GDP. It looks at a government’s debt burden from a cash flow perspective.

      > The IMF says a country like Greece shouldn’t have financing needs above 15 percent but, in fact, its needs are projected at more than that.

      > Again, this is useful but not enough on its own. One problem is that the IMF hasn’t published any research that validates the 15 percent figure. It merely states this is the magic number for emerging markets, while advanced economies can get away with 20 percent.

    3. Eric, do you have a comparison debt versus GDP table for the whole Eurozone? 15% of GDP sounds pretty bad to me. But what idea did YV get from looking at German statistics I wonder.

      Besides I would appreciate your response to YV idea as distributed via his latest public appearance in the Volksb├╝hne in Berlin, talk shifts to English after the introduction about 2:50 in, about 2 hours and 5/10 minutes long, by the way, something he does not tell his fans on the blog for whatever reason. Personally I postponed, because I couldn't see on vimeo how long it takes, which is unusal. I have no doubt that is slightly more difficult for you from the economics then for me from the field of culture to follow the talk, but you should. ;)

      and I'll cut the rest or the idea of some type of food stamp, or some European US inspired food stamps for European workers from the ECB including Eastern German workers, by the way.

    4. I would guess that few countries are below 5% debt service as % of GDP and I would bet that there is not one country in the world where that percentage exceeds 10%.

  2. Anon (hi, Lea)> Besides I would appreciate your response to YV idea...

    Don't worry about YV. I have given up trying to understand what he has in mind when addressing popular audiences.

    Anon> Erik, do you have a comparison debt versus GDP table for the whole Eurozone?

    For definition of "debt service" see e.g.
    (confirms my understanding as debt service = interest + maturing principal)

    I don't find graphs or tables for debt service as % of GDP.

    Google search on "gross financing needs" leads to some info such as e.g.

    This graph shows maturing debt + deficit for various countries (2010). Maturing debt (principal) of 10% up to 20% apparently isn't exceptional; adding a few % for interest gives an idea about debt service.

    I also found an IMF report "Staff Guidance Note for Public Debt Sustainability Analysis in Market-Access Countries" in which the GFN/GDP criterion (GFN= Gross Financing Needs) is discussed, see e.g. Table 7: 15% for emerging markets, 20% for advanced economies.

    Apparently there's some intended or unintended confusion between EU and IMF about "debt service" (interest + maturing principal) versus "gross financing needs" (deficit + maturing principal). Both are closely related, of course, but not the same (they're the same if and only if deficit = interest or, equivalently, primary deficit = 0). I wonder how the issue will turn out.

    1. True, in the wider sense debt service is interest+principal but for the purposes of a budget it can only include interest because interest expense flows through the budget whereas repaying and/or borrowing debt does not.

      If Dijsselbloem considers the 15% for interest+principal, he is really blowing smoke as regards relief. Relief for the budget can only come in the form of less interest expense. If one puts principal under the 15% cap, it's only a relief for the annual refinanincing requirements but that does not necessarily mean budget relief. Again, what matters is the relief on the interest expense. The debt will be refinanced regardless how much needs to be refinanced every year.

    2. Given the fact that with fiat money the amount of debt almost equals the amount of money in circulation I do not see the need of a reduction of the debt in the case of countries.
      What would the advantage of having less money in circulation. Therefore the idea of countries trying to reduce their debt seems to me not very wise.

      As far as the question of debt sustainability is concerned, as a layman, I don't understand why the GDP is used as a reference. To me, that would only make sense if private debt would be added to sovereign debt.

      In my own country (Holland) sovereign debt is pretty much under control, but it is the households debt that is worrying.

      I understand the situation in (for example) Italy is quite the reverse. Government debt is far higher than in Holland, but households debt is much lower. I have no idea what the figures are for Greece but I wouldn't be surprise if the situation would be similar to Italy.

      Therefore, if one would add household debt onto sovereign debt, I'm not so sure that the total debt in Holland would much differ from the total debt in Italy.

      I would love to see statistics whereby annual interest payments are expressed as percentage of the annual budget for governments as well as for households.

    3. "Given the fact that with fiat money the amount of debt almost equals the amount of money in circulation "

      "fiat money" versus something considered "valid as gold", and yes the activists in the field bore me somewhat, reminds me of a new meme, I cannot even start to wrap my head around that debts somewhat equals money. All money is debt. Even the money I earn? If, I leave out US narratives I stumbled across in which bankers are the scapegoats, the usual equation you find is the 1:10 percent. I am hesitant of financialision of the market, but all bankers, even the ones in my bank?

      Beyond that, not necessarily related, I discovered a trend in US academic economics that blames the EU for not simply creating as much money as is needed to, e.g. solve the Greek crisis, versus the US model.

      Why I cannot quite wrap my my head around this is, there apparently does not seem to be a completely pure US style "fiat money", or money created out of plain air. If it were, why did we hear all this chattering about China's possession of US government bonds webwise? Could it have surfaced, if money was simply created out of plain air, as the anti-fiat-moneyist claim?

      Thus what is the exact difference between Europe and the US?
      That US bonds are issued centrally while European are not issued centrally too?

      I do understand this would somewhat equalize debt serving costs, what I am not quite sure about is what YV's European new deal would result in on the ground in other states. In other words, to what extend it would concern social cohesion in other states. In the apparently, from his perspective, rich North versus the "new deal South".

      "As far as the question of debt sustainability is concerned, as a layman,"

      Usually, YV, seems to adopt the idea that a layman's perceptive does not work on the macro or state level, but to the extend I recall his recent talk in Berlin, this time he reversed. Now it suddenly seemed to be quite easy to understand state matters, via a layman's perspective, but maybe I am way too prejudiced against the guy by now.

      what I am wondering a bit about. Would it be easy to get a credit to buy a house in Germany, Austria or Switzerland, or in fact in the rest of the rich North from a bank? The way it was in the US, Ireland and Spain?

      In this context, the only thing I remember from Yanis recent Berlin contributions was the Greek construction trade, he mentioned, that no doubt would benefit from a housing bubble, would it e.g. Germany too? And no doubt statistically we could have more house owners over here. We may in fact be among the regrettable Western lot in that context.

      But apart from more space for refugees do we need an investment housing bubble over here?

      But if all money equals debts what happened to the money that once flew into Greek debts? At one point it must have been investment, no? Or the Target2, he recently mentioned, apparently the "surplus" money he would like to redirect. Could I find this Target2 money on the German budget over the years? ...

      Why does, from my layman perspective does potentially privately owned surplusTarget2 money wind up on a state's budget anyway? Nitwit question, no doubt. But I am assuming that the state is not equal to the larger German market and thus its exports, but the state cashes in the interest? Cannot be, if I sell something and some does not pay after I reminded him of the payment, legally a certain interest is due. Again in layman terms a certain interest is due to me and not the state.

      sorry, I am a well known nitwit babbler webwise. And I do not even proofread, Chris. ;)

    4. @ Anonymous at 8.10
      Let me try to answer a couple of your questions.

      1) All money which is not backed by anything of substance is fiat money. Fiat money represents the full faith and creditworthiness of the issueing country, not a thing more. If you go with a 10 USD bill to the FED and state that you want to get your money back, they will give you another 10 USD. No gold, no foreign currency, no nothing. If you want to get something else because you no longer trust the dollar, you have to buy it - with USD - in commodity or foreign exchange markets at market rates.

      2) The US gold standard after Bretton Woods meant that the US committed to give foreign central banks 1 ounze of gold for every 35 USD they presented at the 'gold window' of the Fed, if they so desired. By around 1970, the US had printed so many USD (Vietnam war, current account deficits, etc.) that foreigners held about 4 times as many USD as the US had in gold reserves at the value of 35:1. So in mid-1971, after a long weekend with his advisers in Camp David, Nixon told the world: "Sorry folks, we will no longer give you 1 ounze of gold for every 35 USD you present. In fact, we'll give you nothing other than USD". And Secretary of the Treasury John Connally then flew to Europe and casually told the upset Europeans: "The USD is our currency but your problem!" That's how the gold-backed USD converted to the fiat USD. I am not aware of any currency today which is not a fiat currency.
      3) The ECB (just like private banks) can create fiat money out of thin air just like the FED (or American private banks). For example: quantitative easing is a massive way to create fiat money.
      4) One difference between the US and EU is that the US has a federal government which collects federal taxes (i. e. has its own revenues) and which can issue bonds with the full faith and creditworthiness of the United States of America. When the Fed buys new bonds issued by the US Treasury, it is monetizing debt (presently the Fed is by far the largest buyer of US Treasuries). Thus, the US cannot go bankrupt as long as it has all its debt in USD; i. e. in a fiat currency which it itself can print.
      5) While the Fed is a central bank with a state behind it, the ECB is a central bank without really a state behind it. There are no EU bonds which the ECB could buy.
      6) US states can also issue their own bonds but it is crystal clear that those bonds only represent the full faith and creditworthiness of the borrowing state without any support for the USofA.
      7) If you are a very good credit risk (stable and good income, some reserves, etc.), you can get a house loan in Germany or Austria any day. Just like you could in Greece. Greek banks shy away from lending due to credit risk and not due to liquidity problems.
      8) Yes, some people share the thought that the influx of refugees could cause a bit of an economic boom in Germany.
      9) No, you cannot find Target2 in any budget. Neither can you find it in the books of the ECB. Target2 is in the books of the individual national central banks. The Bank of Greece, for example, shows Target2 liabilities of about 100 BEUR.
      10) YV has several 'new deals'. His major one is the 'modest proposal' which was tailored to Greece: (a) the ECB would assume the responsiblity of servicing Greece's debt by issueing its own bonds to finance that; (b) single-banking area througout the EZ under ECB supervision; and (c) investment drive financed by EIB and refinanced by bonds which EIB issues.

      Another one of his deals calls for Europe-wide unemployment, health, etc. insurance. And so forth.

    5. Hey LeaNder,

      I like to use a metaphor. Compare the economy with a plant. In order to grow it needs (amongst other things) water. Not to much, no to little.

      Water is essentially a free commodity, but the distribution of it does involve cost.

      As Herr Kleingut has explained rather well, fiat money has no intrinsic value so in that sense it is a free commodity.

      It is basicly created by a Central Banks who then, thru a complicated leverage system, allow commercial banks to create even more as a form of debt.

      And because it is called debt, the confusion arises that we somehow have to pay this debt back. We can't and we won't because if we did we would have any money left

      Like water, we should distribute money wisely, to the benefit of all of us. Unfortunately that is where the problems start.

    6. @ Segerius
      I had to chuckle at your last sentence that money should be distributed wisely. Well, let me suggest that money first must be earned before it can be distributed if things are to go well on a sustained basis. Now, money printing and all the rest of it allow us today to spend money which has not yet been earned but sooner or later the bill for that will come. Perhaps not to us but then for our children.

    7. thanks, kleingut, may I ask a question about 9? Concerning 8, its obviously a Utopia, but I hope we will make it. Nevermind that we should have started a lot earlier to reflect on matters. Concerning industry and related hopes: There may be a bit PR involved to, post the VW scandal.???

      Nutshelly: I think Merkel did the right thing at that point in time ... Ironically enough, one of my favorite Cartoons showed Merkel in front of the Oval Office with a female secretary. Merkel wore army outfit, backpack and all, and the secretary announced her this way: Mr. President, the German voluntary army. Shortly after Syria surfaced prominently as the next step on the way to take Iran. No doubt Afghanistan, Syria and Iraq produces emigration now we don't seriously want to sent home. Do we?


      Back to 9:
      Sorry, but it's pretty hard to look into your Target2 articles without a basic set of knowledge:
      The Bank of Greece mirrors the debts of Greek banks versus whatever foreign banks? At least in the present system?

      Concerning 10, from a PR perspective, admittedly, I am wondering what other interests could be involved in the creation of the PR phenomenon YV and what their interests are.

      I better don't deny it, but no doubt he may be a true believer. But then, are true believers always so interested in public perception and to dominate the debate?

    8. 7) If you are a very good credit risk (stable and good income, some reserves, etc.), you can get a house loan in Germany or Austria any day. Just like you could in Greece. Greek banks shy away from lending due to credit risk and not due to liquidity problems.

      Ok, maybe that is the most important issue.

      Are you suggesting there is a grain of truth, actually there should be, in Yanis Varoufakis claim that the Greek suffer for the larger European bank bail out?

    9. The Greeks DO NOT suffer for the European bank bail-out. Correction: to a very, very small amount they do.

      Some Greeks think that if banks had not been bailed out, they would have gone bankrupt and the Greek debt would have disappeared. Well, debt to a bank is unaffected by the bank's bankruptcy. If the lender goes bankrupt, an insolvency judge takes over and he typically handles outstanding loans much more aggressively than a normal lender. There are only two ways to get rid of debt: either you repay it or it is forgiven. Greece's debt would not have chanded one Eurocent even if ALL of its creditor banks had gone bankrupt. All it was for Greece was a change of lenders: from private lenders to official lenders and official lenders have behaved a lot better than any private lender ever would.

      How do Greeks indeed suffer a little bit? Contribution to bail-out funds is normally determined by a country's share of the ECB's capital. Germany has about 27%, I believe, and Greece is probably not much more than 1%. So to the extent of Greece's share in the ECB, Greeks are participating in their own bail-out. But I am sure about the ESM. I believe than once a country is beneficiary of the ESM, it is no longer required to fund it. So maybe Greeks' share is even much smaller than its % ownership of the ECB. But certainly as regards the ECB's Greek risk, Greece is on the hook for that to the tune of its ownership share.

    10. @ Kleingut,

      Glad I made you chuckle. Earning is of course just an other word for distribution.

      We might not agree on this, but I see great differences in earnings that cannot simply be explained by hard work or responsibility.

      What we leave our children is a wonderful infra structure of roads, bridges and buildings and a debt (amount of money circulating) that they never have to pay back.

      They better should worry about the quantity (an quality) of water that is available to them, than about the amount of money we have left them.

  3. "Given the fact that with fiat money the amount of debt almost equals the amount of money in circulation I do not see the need of a reduction of the debt in the case of countries."

    The problem is that debt has to be repaid. What you say would be accurate if there was debt monetization. Then debt wouldn't be a problem.

    "As far as the question of debt sustainability is concerned, as a layman, I don't understand why the GDP is used as a reference."

    Again, the problem with debt is that it has to be repaid. Therefore the GDP reference gives us a good idea about whether an economy can handle the debt service or not.

    1. On a personal level, debt has to be repaid within ones lifetime. As a country doesn't have a lifetime refinancing it's debt shouldn't be a problem.

      As long as a country pays the interest the lender will happily refinance your debt. What else can he do with the money than lending it to someone who pays interest on it.

      Again, as the total debt equals the money in circulation debt repayment is pointless. Not only is it mathematically impossible it would also leave us without money.

      Monetization would certainly rid us of the idea that creating money comes with a price. True when coins had to be made, but to-day's electronic money is created without any cost.

      >Again, the problem with debt is that it has to be repaid. Therefore the GDP reference gives us a good idea about whether an economy can handle the debt service or not.< 

      In the Eurozone money is created by the ECB, they demand a price for the favor they are doing us and the price is called interest. One could argue about the cost of creating money, but why on earth should we strive to pay the ECB back?

      In my opinion a better reference would be the price we pay for using money. i.e the interest we pay annually as percentage of our annual income.

      If a country would pay 10% of its annual income on paying interest seems to me a better indicator than a percentage on it's GDP, which is a rather abstract number anyway.

      The same applies to household debts.

    2. @ Segerius
      I agree and I disagree with some things.

      The difference between sovereign and any other debtor is that any other borrower, be it an individual or a corporation, can go bankrupt because there are bankruptcy laws. A sovereign cannot go bankrupt because there are no bankruptcy laws for sovereigns and, from that standpoint, sovereigns literally live forever.

      It is not correct that a person must repay his debt in his lifetime. If he dies, his heirs have to decide whether they assume the inheritance, i. e. his assets AND liabilities. If the debt is too high, they won't accept the inheritance. The creditors will liquidate the assets of the inheritance, pay off their loan claims and if there is a difference left, they take the loss.

      Yes, normally what matters is whether a sovereign can pay interest which is why I think one very good measure of debt sustainability is the % of tax revenues required to pay interest. Countries like Greece (or Germany!) are currently close to 10% of tax revenues (yes, Greece is at about the same level as Germany; no more!). Greece, in the 19th century, at one time was close to having to use 50% of tax revenues to pay interest.

      But it is not interest alone. Sovereigns can run into the situation where they can no longer refinance their debt. This can only happen when their debt is in a currency which they can't print, for example: an emerging market country with its own currency but with a lot of foreign currency debt; or --- Greece with the Euro.

    3. Target2 is a liabililty of the Bank of Greece and not of Greek banks. If Target2 were zero, it would mean that Greek banks could obtain all the funding they need to make their foreign payments. Vice versa, a Target2 liability represents the amount of foreign funding which Greek banks could not obtain to make their foreign payments and thus they had to get them via the ECB system and via the Bank of Greece.

    4. @Chris Segerius

      "Again, as the total debt equals the money in circulation debt repayment is pointless. Not only is it mathematically impossible it would also leave us without money."

      This would be true only in a closed economy. In an open economy it doesn't apply, because money flows out of the country to finance imports. If capital isn't invested back to the debtor country, then you have a balance of payments crisis, and then you're in real trouble. This is what has happened to Greece.

    5. You are right. Whereas the total amount of debt within a currency equates the the amount of money in circulation, the distribution of it over the individual members could be a case for concern.

      I guess that is the difference between micro and macro. What is sensible on a micro scale can be pointless on a macro scale and vise versa.

      But I tried to join the conversation about my unease about the fact that households debt are always left out the equation. It is always sovereign debt against GDP as if households debt don't seem to matter.

      To me that seems not a fair representation of the debt burden as a whole. Any thoughts on that?

    6. @ Segerius
      I am not sure that household debt gets as much ignored as you suggest. Of course it is terribly important. Take Greece. You can forgive the state all of its debt but Greek banks would still have over 70 BEUR in non-performing loans to Greek borrowers (close to 40% of all loans!!!). If there were no recapitalization of the banks from abroad, the entire banking system would break down.

      I think one reason why household debt is not so much in the limelight is that it is strictly a domestic issue. No foreigner cares if half of the Dutch go bankrupt and if Dutch banks lose a lot of money. Foreigners only begin to care when their own money is required to rescue bankrupt Dutch people and banks.

      Take Greece: at the outset of the crisis, there was enough Greek money (savings) to buy all the Greek bonds. Had all Greek debt been in the hands of Greeks, there wouldn't have been much excitement between Paris, Brussels, Frankfurt and Berlin. However, virtually all the Greek debt was in the hands of foreigners and that's why they got scared in a hurry.

      If all of Greece's debt were on the books of banks from Mars, I doubt that anyone in Europe would care much about Greece. Sorry to be so sarcastic but that's fact of life.

  4. @ Kleingut,

    Your explanation of the difference between a sovereign and any other debtor is far superior than mine. Thank you for that. The point I was trying to make was, that there is a difference between a sovereign's debt and any other debt.

    We seem to agree on the fact that the amount of interest payed expressed as a percentage of sovereign's income (taxes) might be a better reference than a percentage of its GDP.

    Which brings me to the point of households debt. This has been left out of the equation completely. To me, this distorts the conversation.

    I'm not at all convinced that average spending power of the Dutch is so much higher than that of the Greek. Considering that the Greek professional class only declares half of their income.

    Hence, our reluctance to bail out a Greek government that is seemingly reluctant to put reforms in place.

    Than the question of refinancing. This of course is a question of trust, which comes on foot and leaves on horseback.

    Thus far the Eurozone has taken care of that and saved Greece from a default and total chaos. As long as they continue paying interest on their debt, sooner or later that trust will return. The idea that the amount of debt is unbearable is ridicules. It is not the amount that matters but the cost of interest payed over that amount.

    And thanks to the Eurozone that has been taken care of.

    And as long as there is a cap on interest payment of 15 % of their annual tax intake I can't see what they complaining about. They could improve that situation rather quickly by organizing an efficient tax collecting system.

  5. There's one thing I would like to bring up here as it is related to the question of how much of a country's GDP or tax income could be seen as a realistic maximum to be spent on interest:
    There obviously is way too much debt in the major economies. Sovereign debt is only one very visible part of it. But also companies, banks and the general population have accumulated loads of debt over the last few decades.
    Demographic decline and a lower annual increase in productivity make it very unrealistic to simply "grow out of the debt", which was the solution in the UK after World War 2.
    This path is not open anymore (as I said: due to demography and lower productivity growth, it could be considered a success to achieve a 1 per cent growth rate per year for the Euro Zone, not enough to grow out of the debt.

    Getting rid of the debt by austerity seems a recipe for human misery on a large scale, driving a whole generation of young people to continue living with their parents because they cannot find jobs. Ultimately this is a waste of human resources on a large scale and no way to reduce debt to a level from where self sustained growth seems possible.

    So what can realistically done?

    I think YV is a maniac. But here's a way out that resembles some of what he suggests (only that he wants to get rid of capitalism while I would be happy to get it functioning again):

    Why not take loads of sovereign debt out of the system by creating a huge financial vehicle, that offers Eurozone member states to refinance their debt up to a level of, say 60% of GDP.
    That debt would have no maturity, so run forever. To make it look less like monetizing debt (which of course it is!) there's be an interest in that debt of e.g. 1% per year. That money would be transferred to a fund that is designed to trigger growth by investing in growth-enabling projects (infrastructure, education, maybe daycare for children to promote female participation in the workforce once the economy is under more steam).

    This way, 60% worth of government debt in the Eurozone would be neutralized. That will keep government budgets over water for many years and give them room to breathe, hope to the population and something of a European vision.
    If in, say, 10 Years it is decided that the 60% need to be raised by another 30%, so be it.

    This would require stronger European integration and strong supervision and a strict implementation of accompanying, growth-increasing measure.
    Otherwise it gives lazy, corrupt systems another nice few years - and the crash afterwards will be even harder.

    But honestly: would such a scheme maybe work?

    We cannot carry on like this, the Eurozone is slowly but surely breaking apart...

    1. Your scheme would work if the logic behind it were: "We screwed it up in the past, so we will forget the past and start from scratch but now, the second time around, we will do it right and not as wrong as in the past". That, I am sure, wouldn't happen. Outplacing the legacy debt would only lead to a situation where the entire process of debt-financed government spending would re-start.

    2. @ Kleingut,

      I think you are bit harsh in your response to Anonymus. (Why is everybody here calling himself Anonymus anyway)

      Personally I would love to see a pool of money, created free of interest and to be used to the benefit of all us to keep the economy running.
      With it there should be a system for transferring money that we once had in Holland and was called the giro. It's sole purpose was making payments. At that time is was highly automated and much better and cheaper than the cheque clearing system that the banks used.

      Money kept within the giro system should 100% safe and would earn any interest. Why should it.
      It should be created interest free by governments.

      Next to the giro system there should be banks like we have to day. They would try to attract savings on which they pay interest and have the ability to create money thru credit like they do to-day.

      So you have a choice. Keep your money within the giro system where it will be safe but doesn't earn you interest, or transfer it to the banking system where is earns you interest but isn't 100% safe because banks could go bankrupt in case they take silly risks on the credit department.

      Monetizing 60% of GDP seems to be a good first step in the direction of a pool of money free of interest.

      I”ll go back to the water metaphor I used earlier in this thread. The biggest leap in human health was achieved by making clean drinking water available for everyone.

      Perhaps we should try and do the same with our money. Sanitize it, by making if free of commercial exploitation, that time after time seems to poison us.

  6. Dear All,

    Really nice thread. I especially like our new commentor "Chris Segerius."
    A nice new air of opinion. Really good posts and thoughts. Seems like you all can present better understanding and knowledge in the general populace than all of our politicians. It was the thought in my mind the whole time. The exchange of ideas of what is debt between Mr. Kastner and Chris, really consoles me. Which once again bring me to the understanding that which Mr. Kastner has pointed out so many times. Debt is not the problem of Greece. Greece is the problem of Greece.

    AT AnonymousOctober 13, 2015 at 7:01 PM.
    The problem of Greece which you think is debt, if you have read this blog long enough is not the problem. The interest we pay as % of our GDP is just a fraction. And the new debt restructing or "long term haircut" that will be made will further reduce this debt.

    The problem in Greece is Greece. We can not manage our own economy and hence is why Troika requests the changes to be made as so the economy runs more efficiently and growth comes back. Within growth taxes will subside and personal growth will come.

    But nobody with power (political power) is even discussing this. Explaining this. Debt will never go away. We tend to overdramatize the debt issue.

    As i have said, if those few privatization fall through, if indeed the new manditory system of using plastic money at 50% of your salary or income and new sale receipt machines are issued, gdp will grow, tax revenues will increase, tax fraud will be subdued to a certaine extent and things will can change.

    In the last 6 months i try to observe receipt issuance at stores or small shops. I doubt they issue receipts of mor than 50% of their turnover. Outside of cities it is even worse.


    1. @ AnonymousOctober 14, 2015 at 9:43 AM

      Thanks for the compliment, more lighthearted comments and enjoyable video's can be found on