Saturday, March 24, 2018

Report On Greek Official Debt - Barry Eichengreen & Co.

"In sum, it is hard to avoid the conclusion that any solution to the Greek debt crisis that does not fall on the shoulders of taxpayers several generations removed will require conditional face-value debt relief."

Report on Greek official debt


  1. I used to think that the Greek debt was a huge issue. Then I realized that Greece and Turkey have almost identical total external debt of roughly $430 Billion. And whereas Greece pays roughly $8 Billion in annual government debt service, Turkey for the same amount of debt pays 10 times more or roughly $80 Billion in annual government debt service.

    The official metrics say that Turkey is fine because its debt to GDP is about 50% whereas Greece's debt to GDP is closer to 180%.

    Bottom line: The debt issue for Greece is a political issue and some solution based on Net Present Value will be found and Greece is going to be fine. However, because everyone realizes that indeed there is a strong political game in the background with a tendency towards unpredictability, most FDI will be very cautious if not eager to postpone investments in Greece.

    Nevetheless, I sure don't want to be Turkey paying interest rates for my debt which border usury (the illegal action or practice of lending money at unreasonably high rates of interest) aka credit card interest rates of 18% and up.


    1. Your numbers are messy and your argument flawed. Turkish GDP has been, more or less, growing since 2002, net external debt is 35% of GDP, while their economy has been expanding towards high added-value sectors. Furthermore, it's a young country. In comparison, Greece stagnates in the austere fiscal environment of the Eurozone, all of it's debt functions as foreign debt, cannot devalue, cannot protect it's economy against foreign competition, has tilted heavily towards one sector (tourism), and is a country of old men that soon will find it hard supporting it's pension system.

    2. Jim Slip:

      Further evidence:

      The latest value for Debt service on external debt, total (TDS, current US$) in Turkey was $75,952,570,000 as of 2016. Over the past 46 years, the value for this indicator has fluctuated between $75,952,570,000 in 2016 and $177,210,000 in 1970.

      Source: Source: World Bank, International Debt Statistics.

      That was in 2016. Today, total debt service on external Turkish debt exceeds $80 Bil.

      On the other hand, Greece - as frequently Kleingut reports here in his blog - has a financing need of its external debt based on cash balances of around 5 Billion euros. If you use accrual accounting the general government debt expenditure is double, around 10 Billion euros.

      So due to the debt restructuring Greece has received by mostly European setups, Greece for the same amount of external debt as Turkey pays less than 1/10th on debt servicing of what Turkey pays which is astounding.

      Greece very well could be stagnating under austerity but surely does not have to service external debt denominated in US currency with a rapidly depreciating lira which makes debt servicing an impossible task.

      We are not arguing here whether Berlin made mistakes in Greece (because it made some big ones) but whether somehow (and despite mistakes of the past) Berlin has managed a viable situation for Greece knowing that any favorable adjustment treatment in Greek finances would be also sought by Italy, France or Spain.

      In the end what we have here in Greece resembles a paraphrase of a famous expression of the French mathematician, physicist and religious philosopher Blaise Pascal:

      “Politics has its reasons, which economics does not know.”


    3. Turkey is a vibrant economy that has autonomous monetary and fiscal tools. Greece is the opposite. Furthermore, Turkish external debt is mostly privately held, whereas all of Greece's liabilities function akin to foreign debt due to it's lack of autonomy. Also, it doesn't matter if Greece's government-debt service appears to be low when the trade-off is perpetual fiscal squeeze.

    4. Jim:

      My I suggest you read the articles at Ahval News regarding the Turkish economy? Here is a sample:


  2. Jim:

    According to the total Turkish external debt is $432 Billion:

    According to the same site the total Greek external debt is $429 Billion:

    So, why do you say that my numbers are flawed?


    1. As regards debt service, you should separate principal from interest. Since it is taken for granted that a 'normal' country automatically refinances principal, it is really only the interest expense which matters. Here you should compare Turkey and Greece with respect to: interest as % of GDP, as % of government revenues, as % of government expenditures. Then you would get a fairly decent picture as to the relative burden of debt service between the 2 countries. Not knowing the numbers, it's hard to believe that Turkey would be in such an overburdened situation

    2. Kleingut:

      It is true that total external debt includes both principal and interest but we all know that government debts are only recycled therefore the principal repayment is a temp situation and only signifies new debts at different interest rate.

      If you want to look at it differently, then simply look at short term interest rates for Greece and Turkey. Short term paper for Greece ranges from 1.03% to 1.4% (3month to 1yr range). The interest rate for Turkey for its short term obligations is in the 12%-14% range.

      So, there you have it we again discover the factor of 10 differential via another way.

      And in Turkey's situation is not only that it pays 10 times more interest than Greece but it also has to pay said interest plus whatever principal it recycles into new debt in a rapidly depreciating currency which makes the debt burden substantial.


    3. May I suggest skimming through these articles because they are "screaming help for Turkey" to the extent the authors are not in jail already:

  3. Jim Slip:

    If you want to compare Turkey to Greece you need to compare apples to apples (meaning non-inflationary numbers):

    GDP Constant Prices in Turkey increased to 448956426.80 TRY THO in the third quarter of 2017 from 410057068.40 TRY THO in the second quarter of 2017. GDP Constant Prices in Turkey averaged 264079087.15 TRY THO from 1998 until 2017, reaching an all time high of 448956426.80 TRY THO in the third quarter of 2017 and a record low of 148486309.20 TRY THO in the first quarter of 1999. (Source: Trading Economics)

    Using the conversion 1TL = $0.25 then the Turkish GDP in constant prices becomes $112.2 Billion. You keep quoting the inflationary GDP which is 8.5 times more than the real GDP of Turkey.

    I don't think when you have a real GDP of $112.2 Billion you could be taken seriously in Europe. Turkey is a great export market for German goods (Germany outsells Turkey 2 to 1) and that's fine by Germany. Why would Germany spend more of the EU Treasury money on Turkey when it has all the advantage it needs already from Turkey?

    Greece on the other hand (with its abysmal and wretched current condition) has a GDP in Constant Prices in Greece of 46797.60 EUR Million in the fourth quarter of 2017 from 49856.40 EUR Million in the third quarter of 2017. GDP Constant Prices in Greece averaged 50569.56 EUR Million from 1995 until 2017, reaching an all time high of 64999.80 EUR Million in the third quarter of 2007 and a record low of 36552.30 EUR Million in the first quarter of 1995. (Same source: Trading Economics).

    Using a conversion rate of 1 euro = $1.23 then the Greek constant GDP is $57.56 Billion.

    So at first glance the Turkish constant GDP is twice the Greek GDP. And Germany has about a 2.5 to 1 export advantage with Greece which it nevertheless has to support in other ways through transfers of the EU treasury.

    Now we have to enter populations because the $112.2 Bil. Turkish GDP when divided by 80 Million Turks it produces a per capita real GDP of $1402. When we divide the Greek GDP of $57.56 by 10 Million we get a per capita real GDP of $5756.

    So when you are Germany and you look at these figures you say to yourself:

    I am looking at two economies Greek and Turkish which I have an almost identical trade advantage. Germany's advantage vis-a-vis Greece costs me something because is not for free. And Greece has almost 4.5 times the per capita real GDP of Turkey. The German trade advantage vis-a-vis Turkey is almost free (minus such structural funds funds Turkey receives as a non-member).

    So, if I am Germany why would I want to pay more for a trade advantage I already have with Turkey whose economy has structural inflationary problems?

    So, I am not sure what is the advantage you see in Turkey (as a young economy) vs. Greece. Turkey might be a young economy but the youngster is already delinquent and thus a bit of a basket case.