With Greek 10-year bond yields trading above 16 percent and the government about to make 6 billion euros (US$8.7 billion) worth of new cuts, while selling off 50 billion euros (US$72.5 billion) worth of government-owned property, Greek austerity numbers don't add up, one analyst warned.
"Strict fiscal austerity measures fail to reduce deficit at desired pace," said First Global Chief Strategist Devina Mehra in a research note.
"Announcing and then implementing fiscal austerity measures appear to be considered a panacea in Europe," he said.
"European leaders have been kicking the can down the road in the hope that the fiscal consolidation that is underway will help Greece win back confidence in the capital markets and, consequently, lower its dependency on bail-out funds and eventually repay its debt,” Mehra said.
This is fantasy, according to Mehra, who believes Greece will default or restructure.
"It has been over a year since Greece was shut out of the markets," he said. "Since then, Greek bond yields have more than doubled, with the 2-year yields at 25 percent and 10 year yields at 16.5 percent."
Mehra said falling government revenues combined with rising expenditures will never lead to lower national debt.
"What was particularly worrying was that the net revenue of ordinary budget was 9.1 percent lower over the corresponding period last year, while the net expenditure was 3.6 percent higher," he said. "In a classic example of a debt trap, Greece's interest payments increased to 3.819 million euros for the first four months of 2011, up 14.4 percent."
"With its higher interest payments and declining nominal GDP (gross domestic product), Greece can only fantasize about achieving a significantly lower deficit-to-GDP ratio,” Mehra said.
With the labor market and industrial production both weak, the only silver lining is a lower current account deficit, Mehra said, but this is hardly a reason to party in Athens.
"We believe that Greece will be unable to emerge from its crisis without some kind of restructuring, which the European Central Bank is opposed to, as it owns 45 billion euros of Greek government bonds and has a reasonable exposure to Athens-backed securities as collateral," he said.
With the ECB so worried, Mehra questions whether much of the bad news on a Greek default is already priced into the market.
"Thus, instead of kicking the can to the end of the road, this might be the time when some restructuring in Greece could have relatively less-dramatic effect," said Mehra.