LEX “Am I not a man?” asked Zorba the Greek. “Wife, children, house . . . the full catastrophe.” Lately, the Greek economy has resembled Zorba’s “full catastrophe” too. With public debt higher than 100 per cent of gross domestic product, investors have suddenly woken to the scary prospect that the budget deficit is also forecast to hit 12 per cent of GDP in 2010 and 2011. Imagining an “Iceland on the Aegean”, spreads of 10-year Greek bonds over bunds have exploded. Ditto Greek credit default swaps, now higher than for South Africa, Poland or Peru.
Greece’s most pressing financial problem is the possibility of a buyers’ strike by nervous foreign investors. The ruling Pasok party has pledged to shrink the deficit by 3 percentage points. That will be a painful adjustment, with little track record to support it, although perhaps credible this time given Pasok’s parliamentary majority. And while Brussels has censured Greece for its Maastricht-busting budget, France, Spain, Italy, Belgium and Portugal are close behind. Raising funds is likely to become increasingly hard for all profligate countries. If Greece can prove it is a high-quality, high-spread euro credit, investors will continue to come.
