As you can see, Germany is OK and Portugal is nearly there but the other peripheral countries are still in trouble, Greece being #1 among them.
Greece borrowed Thursday at 4.95 percent and the International Monetary Fund (IMF) forecasts its nominal growth this year to be 0.2 percent. (Note that the economy shrank by around 5 percent last year, so 0.2 percent growth wouldn't be bad by comparison.) The debt/GDP ratio is forecast to be 174 percent.
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Plugging those numbers into the above formula, it turns out that Greece has to run a primary budget surplus of 8.3 percent of GDP in order to prevent debt from snowballing. Unfortunately the IMF predicts it will run a primary surplus of only 1.5 percent this year. Even using the IMF's "cyclically adjusted primary balance" of 5.9 percent of GDP, Greece is still just digging itself deeper into a hole.
In fact, I would argue that Greece's bond issue reflects more on the state of Germany's economy than it does on Greece.
Germany last year ran a current account surplus of 201 billion euros, or 7.5 percent of GDP, and this year is forecast to run a surplus of 6.8 percent of GDP. Its trade surplus with the rest of the EU runs some 50 billion euros a year. It has to recycle that money somehow. I think the fact that Greece can issue bonds at all demonstrates the unbreakable links between a country's current account and its capital account. A country with a current account surplus has to run a capital account deficit; that is, it has to export capital.
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Investors must be hoping either that the snowball can grow for at least another five years before it gets too big to roll further, or that they will have moved on to another job before the snowball finally stops.
The author is the Global Head of FX Strategy at IronFX Global, an on-line trading firm specializing in Forex, CFDs on U.S. and U.K. stocks, and commodities. He was previously Head of the Forex Committee at Deutsche Bank Private Wealth Management.