Is Greece a Prime-A Credit?

Its 9:40am in Greece on Sunday, Feb 12. Today should be a big day as its up to parliament to vote on the proposed bail-out package. This post attempts to put things in perspective …

First, some facts:

Fact 1: Greece is not a poor country. Despite five years of contraction its GDP per capita of USD 27,800 ranks it #29 in the world and is higher than most of the Asian tigers including South Korea (USD 23700 ranked #31) and Taiwan (USD 21500 ranked #37): Source the IMF 2011 rankings.

Fact 2: Government debt sits at 149% of GDP or USD 41,000 per capita. How many people you know have less debt than this?

Fact 3: The IMF/EU’s EUR170B bailout package is not a gift. It comprises loans that can be called upon to refinance existing borrowings at lower than current market interest rates. If Greek borrowing costs were to fall, they need not access this credit facility.

Fact 4: The EU is fixated on bringing the Debt/GDP ratio down to 120% by 2020 based on current predictions. The fact is that 2020 is a long way off and any forecast today will have significant error.

My question to my readers is this: if you were a bank and a customer earning USD 27800 per year came and asked for a USD 41000 loan secured by a lot of land, would you make that loan? Under standard lending criteria, banks would make this loan and the borrower would be considered a Prime-A risk (banks will lend 2.5 times earnings on a first mortgage).

So what is all the angst over the Greek debt crisis about? One issue, of course, is the security backing their debt. A second issue is the current fear-driven level of the interest rate makes debt service very expensive. A third issue is what did they do with the original cash other than waste it?

All these things are valid criticisms but my point is that were Greece a private individual, the basic micreconomics of lending would make them a good credit. Todays vote is all about improving the micreconomics of the Government’s economic interactions. Who would vote against this?