The two words dividing Greece and the Eurogroup, por Frances Coppola.
In its 2012 letter to the Eurogroup, the Greek government committed to achieving primary surpluses of 4.5% from 2016 onwards.
This was never a credible commitment. Attempting to achieve primary surpluses of such size for an extended period of time would ensure the Greek depression – already longer and deeper than the US Great Depression - continued not for years but for decades, and would probably be unattainable anyway because of that depression. And the collapsing GDP consequent on such austerity would actually increase, not decrease, the debt burden. It’s a vicious spiral which Yanis Varoufakis has described as “debt deflation”.
Irving Fisher, writing about the US Great Depression, defined “debt deflation” as a condition where “The more the debtors pay, the more they owe”. This is undoubtedly true of Greece: attempting to comply with the terms of the November 2012 agreement has resulted in debt rising from 110% to 175% of GDP in three years. Since, during that time, Greece has managed to achieve a small primary surplus, this astonishing debt/GDP increase is almost entirely due to falling GDP.