Greece’s tiny debt load

November 5, 2011

No, that is not a typo in the headline. Greece has long been the focal point of Europe’s crisis. It was the first country to reveal some cracks in a monetary union that lacks a fiscal authority to back it. Indeed, Greek politics were dominating the headlines on Friday, with news that the prime minister had survived a confidence vote in parliament restoring a momentary sense of calm to a still very dramatic situation.

However, Greece’s actual debt load is only large relative to its own small and struggling economy. In the larger context of the euro zone, the actual amount of debt being haggled over is rather puny. Matias Vernengo, a professor of economics at the University of Utah, explains:

When you look at the size of Greece’s debt, which is slightly more than $500 billion, that corresponds more or less to 3 percent of euro zone GDP. It’s a very small amount of debt. The peculiarity of the crisis is that it’s political. It has an economic basis, an imbalance that it’s unable to solve but which is technically simple to solve.

He was speaking at a conference about the crisis at the University of Texas’ Lyndon B. Johnson School of Public Affairs, where a number of proposals were floated to solve the increasingly critical situation. Indeed, the notion that politics – namely the unwillingness of richer states to help poorer ones even though it is in their best interest to stabilize the situation – was a recurring theme at the academic gathering.

Olivier Giovannoni of Bard College also highlighted it:

This is not a debt crisis. This is a political crisis. If we are to overthrow the current system into something that is more workable, there are plenty of possibilities. […] Because I don’t see the ideas of political leaders will change any time soon I fear that we are headed for a catastrophe. I really hope that I am wrong.

 

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