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European Account: Chaotic Greece shows how UK must reform

First published: The Times, 23/04/2010

Apart from the fact that the International Monetary Fund (IMF) looks set to assist a eurozone member for the first time, why does Greece, with a GDP of only $350 billion (€260 billion) and a population of 11m warrant such attention? And if it is so important, why do global financial markets seem fairly unconcerned about much larger economies with big debt problems, such as Britain, not to mention America and Japan?

Greece’s budget deficit is likely to be about 13.5% of GDP this year, and public debt is expected to top 120% of GDP. It is now paying a real interest rate (adjusted for inflation) of 4% to borrow, but real GDP is contracting.

This deadly combination puts its debt on a potentially explosive path. The gross borrowing requirement in the next three years….more