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Greece Falls Into ‘Death Spiral’: Rising Debt, No Growth

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Reuters
Oct 4, 2011

Drowning in red ink, Greece has nowhere to turn to revive the economic growth that might put its debt on a sustainable trajectory, reassure angry foreign creditors and offer hope to its recession-weary citizens.

Instead, the country finds itself in a vicious circle—a death spiral, some would say—in which it is borrowing ever more to keep up on its existing debts, crushing growth in the process and thereby worsening its all-important ratio of debt-to-gross domestic product.

Springing the debt trap would not be a miracle cure either: a manageable level of borrowing is a necessary but not a sufficient condition for Greece to start restoring competitiveness and resume growth after three years of economic contraction.

“If there was a deus ex machina tomorrow and you halved Greece’s debt-to-GDP ratio overnight, there’d obviously be a huge benefit in terms of cash flow,” said George Magnus, senior economic adviser to UBS in London.

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This article was posted: Tuesday, October 4, 2011 at 3:25 am





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