Greece teeters

Erudite Ambrose Evans-Pritchard sums it up:

Greece’s euro membership has now led to a warped economy. The current account deficit is 15pc of GDP, the eurozone’s highest by far. Indeed, the deficit ($53bn) is the sixth biggest in the world in absolute terms — quite a feat for a country of 11m people.

Year after year of high inflation has eroded the competitive base of the economy. This is an insidious and slow effect, and very hard to reverse. Tourists are slipping away to Turkey, or Croatia. It will take a long time to lure them back.

The underlying rot was disguised by the global credit bubble, and by the Greek property boom. It is now being laid bare.

Greece has a public debt of 93 per cent of GDP, well above the Maastricht limit. This did not matter in 2007 when bond spreads over German Bunds were around 26 basis points, meaning that investors were willing to treat all eurozone debt as more or less equivalent.

It matters now. The credit default swaps on Greek sovereign debt were trading around 250 today (compared to 52 for Germany, 62 for the US, 120 for the UK, and 178 for Italy). It has moved into a class of its own.

This is potentially dangerous because Greece needs to tap the capital markets for 40bn euros next year to roll over debt and fund the budget deficit, as well as 15bn euros or so in bond issuance by banks under the state’s new guarantee.