5 Figures That Will Ensure a Greek Default Occurs

Will they or won't they? This is perhaps the most pressing question in the minds of economists right now. Will Greece default on its billions in debt and, if so, will its default create a ripple effect throughout the world?

While it's tough to say if a Greek default is enough to cripple the worldwide economy, it's pretty clear that even an orderly default isn't a good thing. For one, it brings to light just how vulnerable the EuroZone actually is despite what economists would like to believe. Secondly, it leaves the door open for other potential nightmare debt situations (like in Ireland and Portugal) to follow the same course. Finally, it could generate a backlash against already-weakened financial institutions who currently hold Greek debt in their loan portfolios, including National Bank of Greece (NYSE: NBG  ) , Deutsche Bank (NYSE: DB  ) , and ING (NYSE: ING  ) to name a few.

The more pressing question then becomes, "Can anything be done this late in the game to save Greece from a default?" I'd say probably not based on the figures stacking up against the Greek economy. In fact, five glaring statistics stand out to me that signal Greece's fall from grace is likely inevitable.

16.3% -- If your country currently sports a 16.3% unemployment rate, then something has gone terribly wrong. Austerity packages implemented to curb government spending are also having an adverse effect of jobs in an already-cramped job market. Unemployment rates have experienced year-over-year increase of 36.5%, and a third of people younger than 29 now find themselves unemployed.

15% -- According to ratings agency Fitch, Greek housing prices are expected to tumble 15% over the next two years with default rates likely soaring. Unlike many larger countries, Greek public workers (the ones that we just mentioned are out of work) constitute a large percentage of mortgage holders. Default rates tripled in December to 2.7% from 0.9% in the same time a year ago, and hyperbolic interest rates are making it impossible for homeowners to refinance.

110%, 55%, 26%, 21% -- This dramatic four-for-one figure represents the staggering yields currently attached to Greek one, two, five, and 10-year government bonds, respectively. The Greek government doesn't stand a chance at issuing its way out of its debt situation with rates at levels that are practically laughable.

7.3% -- During the second quarter, Greek GDP contracted by 7.3% over the year-ago period. This contraction follows 8.1%, 8.8%, and 4.8% contractions over the previous three quarters, respectively. While this figure serves as a culmination of unemployment, housing, and bond data, it serves as another stark reminder that the ship is sinking faster than anyone had anticipated.

98% -- Based on Greek five-year credit default swaps tipping the scales north of 4,000 basis points, the country now has a 98% probability that it will default on its sovereign debt within the next five years. Although credit default swaps are a thinly traded market, can 98% of investment banks be wrong? In this case, I'm not inclined to think so!

These staggering figures create a new certainty in my eyes that Greece is headed for default. But what do you think? Can anything be done to save Greece from the inevitable? Share your thoughts in the comments section below.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article, but he enjoys a good gyro. You can also follow him on CAPS under the screen name TMFUltraLong. The Motley Fool owns shares of National Bank of Greece. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

 


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 16, 2011, at 3:58 PM, rfaramir wrote:

    "how vulnerable the EuroZone actually is despite what economists would like to believe"

    I don't think 'economists' is the right word, here. Economists (or any other scientists) don't have motivations to believe anything but the facts of the situation and the principles of their science. You might mean one or more of these options:

    A) Euro holders. Nearly everyone in Europe (and many central banks of other countries) is motivated to hope all is well in the EuroZone.

    B) Euro bond holders. Holders of promises of future payment in Euros are desperate to hold onto some semblance of hope that these promises will be worth something in the future. These are wealthy Europeans and banks of all countries.

    C) European politicians. They are presiding over this mess, making it worse the more they intervene, and may be a little fearful of being held responsible. Not that they have much to be afraid of: their people are pretty solidly brainwashed to keep asking for the same economy-damaging policies (socialism, regulation fascism) they alway have.

    "16.3% unemployment rate, then something has gone terribly wrong"

    True. The government has stymied employment. Corporate taxes, minimum wage laws, mandated benefits. These all keep companies from hiring willing workers. Similarly, unemployment benefits (paying people not to work) keep former workers from being willing to accept the available jobs.

    "Austerity packages implemented to curb government spending" have not gone anywhere near far enough. Every euro of government spending is a euro taken by force from a productive person and given to a much less productive one. You need less of that happening. Most so-called austerity packages are mere limits on the growth of government, not really rolling it back, or at most, just a little trim here and there. You cannot have government trying to redistribute more than is being produced. You really can run out of other people's money.

    "Greek government doesn't stand a chance at issuing its way out of its debt situation"

    True. Issuing more debt is no way for someone in too much debt to get out. He must cut his expenses. This is true pretty much independent of the rates.

    "Greek GDP contracted by 7.3%"

    Since GDP includes government spending, this could be a good thing. GDP is not a good measure of the health of an economy. Only the private part of the economy is the productive part. The government part lives off the private part.

    "Can anything be done to save Greece from the inevitable?"

    First question is "Should Greece default?" It may be the right thing to do to set its house in order. I don't know. I don't have a dog in the fight. If I held Greek bonds, I'd be scared. If I had issued Greek bonds, I'd want to break my word so I could put my life back together. Breaking your word is not done lightly. They over promised government largesse to Greeks and over promised future payments to bond holders. They can't pay both. Failing to pay the bond holders won't solve the problem, but it may help them focus on the real problem of having lied to the Greek people that the government can do everything for them.

  • Report this Comment On September 16, 2011, at 4:09 PM, Gonzhouse wrote:

    Greece simply has too much debt. Even assuming the market were willing to take on the debt at reasonable rates, the repayment chances are zero.

    Greece must do what every other country in this position does: de-value their currency and ultimately export your way into better economic conditions. That will require Greece to leave the RU because as long as they are on the Euro, they have no options.

  • Report this Comment On September 16, 2011, at 4:55 PM, larrysd1 wrote:

    I realize this is just a few simple words,Greek higher up's know what there doing they are smart business people,they want more free money.

    And I wish the press would not give so much attention to that country.And I wish the US would not give our money to them.

    Great article

  • Report this Comment On September 17, 2011, at 1:41 PM, Kloris wrote:

    I don't think anything can be done to save them. Those liars have lied to the EU from the start. And many in Europe think they are still lying. They should have never joined the EU in the first place.

  • Report this Comment On September 17, 2011, at 6:05 PM, memoandstitch wrote:

    France, Germany and others paying Greece to stay in the EU is akin to banks marking up their books to fantasy. They are hoping that miracle will happen to Greece's economy when austerity is applied and they won't have to write down their books.

  • Report this Comment On September 18, 2011, at 7:19 AM, Andy60103 wrote:

    The usual mechanism to resolve this is the exchange rate mechanism and devaluation but not an option in the Euro. I can now see why having one currency and 27 economic policies is something of a weakness...

  • Report this Comment On September 19, 2011, at 9:59 AM, glenart10 wrote:

    Greece is not going to default. First off, who cares what the gangster-banksters on Wall Street are assuming as Greece's chances of defaulting? These are speculators who have bought these credit default swaps with the great hopes of cashing in........Next, Fitch saying Greek home prices will fall 15% in 2 yrs.....IS this the same Fitch who gave the US housing markets the thumbs up just 4 or 5 years ago? Greek unemployment rate at 16%? Well if u factor in the number of folks in the US who have left the labor force or are forced to work part time, u would get a number greater than 16%! No one is talking about the USA defaulting, are they?

    The solutions in Greece are simple. COLLECT taxes from the wealthy....Sell off the assets u agreed to sell. Dump the crony capitalism aka USA style corporate welfare.....Get rid of the antiquated labor laws and restrictions on people trying to enter various professions such as pharmacy, trucking, and medical, and a whole host of others. Cut the public payrolls some more.

  • Report this Comment On September 19, 2011, at 1:23 PM, hendersonclaude wrote:

    Greece is the Louisiana of Europe. It doesn't need to exit the Eurozone, it needs to be absorbed into a a more politically and economically unified Europe. If Greece exits, it isn't just the euro that will be at risk, but the whole EU project. Angry taxpayers throughout Europe may cheer at the thought--but they will rue the day, should it come.

  • Report this Comment On September 22, 2011, at 6:06 PM, hs0zfe wrote:

    German voters are being lied to. Greece succeeded in placing its ~ $ 350 bn of bonds and now their creditors have a problem. Take DB, Deutsche Bank. DB could raise $ 25 bn pdq. It's not like most banks don't have high market capitalization. Which leads to the question of the imminent transfer of funds from the taxpayers to banksters.

    Private banks made bad investment decisions. And now they get bailed out with a laughable 21% cut instead of something like a 70% hair cut?! It sure pays to lobby, huh?

    www.newsnetscotland.com/index.php/scottish-news/3057-a-story... Look at how Iceland handled a similar situation.

  • Report this Comment On October 08, 2011, at 11:22 AM, hikingviking wrote:

    Sounds like California. Wait a minute.... with the exception of one of those statistics........it is California! Hold on....and Michigan......and......

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