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.
