The nation of Greece, once the subject of almost daily speculation about the viability of its government bonds, has pulled its economy out of a disaster into a muddle. No doubt, it grew tiresome hearing about Grexit scenarios, and the numerous times when the European Central Bank and the European Stability Mechanism (ESM) came to the rescue. The accompanying chart highlights changes in Greece’s GDP over the past six years.
Today, Greek unemployment stands at an alarming 23%, yet somehow the country has eked out a budget surplus, counting debt-interest costs, of 0.5% of GDP in 2016. The country appears to finally be out of the woods, right? Alas, Dutch and German creditors are now demanding that the Greek budget surplus be raised up to 3.5%, a level which would certainly push the nation into depression. Meanwhile, French, Dutch and German officials are afraid that if they permit the ESM to refinance Greece bonds at lower interest rates, it would embolden anti-EU politicians and potentially break up the union.
The resulting standoff, once again, threatens a Greek default and the possibility of a Grexit. Expect to read all about it in the coming months, and experience deja vu all over again.