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Greece - Debt:GDP Ratio Reduction Timing

By: Ian Campbell | Tuesday, November 13, 2012

An article today reports on an apparent disagreement that arose last night between Jean-Claude Juncker, President of the Eurogroup of Finance Ministers, and Christine Lagarde, Managing Director of the International Monetary Fund. Mr. Juncker is reported as having said that Greece will be given two additional years - to 2022 from 2020 - to meet its debt reduction target of 120% of GDP. Ms. Lagarde is reported as having taken exception to this saying she and Mr. Juncker "clearly have different views" on Greek debt.

Consider from 10,000 feet what is being said here:

So, does it really matter in November, 2012 whether Greece is given to 2022 or 2020 to meet a sovereign debt:GDP ratio that I think it is unlikely to achieve in the end in any event?

A second unrelated article yesterday reported that since the beginning of its financial crisis (or more likely recognition of its financial crisis):

As I see things, austerity programs and real GDP growth are not bedfellows. Accordingly, I suggest you watch Greece going forward as a litmus test as to what may happen to economic 'growth' in other countries that face similar austerity pressures.

The important question is: Are we watching an unraveling of developed country economies and standards of living that, much like a landslide starts slowly, become unstoppable as it gains momentum?

I sincerely hope the answer to that question is 'no'. However, I do believe that the question is one traders, investors, and every other thinking person ought to focus on, monitor, and continuously consider as they each go about their day/day activities.

Topical References: IMF chief and EU clash over Greek debt, from The Telegraph, Bruno Waterfield and Louise Armitstead, November 13, 2012 - reading time 3 minutes. Also read Greek austerity: A light around the bend?, from Marketplace, John Psaropolous, November 12, 2012 - reading time 1 minute.


Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Business Transition Simplified

Through his website and his Business Transition & Valuation Review newsletter Ian R. Campbell shares his perspectives on business transition, business valuation and world economic and financial markets influences on those two topics. A recognized business valuation and transition authority, he founded Toronto based Campbell Valuation Partners Limited (1976). He currently is working to bring his business valuation and transition experience to both business owners and their advisors in our new economic, business and financial markets normal.

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