Follow by Email

Thursday, July 31, 2014

Greece - Staggering Amount of Private Debt!

One of my readers recently posted the following figures about Greece:

Private debt: 220 BEUR (122% of GDP)
Unpaid taxes: 68 BEUR and rapidly rising
Unpaid social security contributions: 20 BEUR

This article from Macropolis states the figures in a different way:

Unpaid private debt: 160 BEUR (88% of GDP)
Consisting of:
Non-performing loans: 77 BEUR
Unpaid taxes: 67 BEUR
Unpaid social security contributions: 16 BEUR

Whatever the correct figures are, the trend is clear: the figures are mind-baffling!

One difference between Greece's sovereign debt and the above private debt is that in the case of sovereign debt, most of the creditors are OUTSIDE the country. If the borrower doesn't pay, damage is occurred outside the country's borders.

In the case of the above private debt, both the borrowers and the lenders are INSIDE the country. If damage occurs, it occurs within the country's borders.

I understand that various ideas are being analyzed as to how to deal with the problem. I would offer 3 words as solutions: reschedule, reschedule and, again, reschedule. Allow the factor of time to make a contribution to the solution. If credit problems are solved too quickly, unnecessary damage might be caused (deterioration of assets values due to liquidation, etc.).

A private economic agent, be that an individual or a company, will not generate any optimism about pursuing new opportuntities if he has to worry that the creditor's 'guillotine' might fall down on him any moment. That guillotine must be moved far away so that people don't have to worry about it all the time. Furthermore, the farther the guillotine is moved away, the greater the hope of the private economic agent that he may eventually escape it.

Having spent most of my career in banking, I have seen innumerable cases how energies can be wasted between borrowers and lenders with things which cannot be changed anyway. If a borrower can't pay, he can't pay. Why talk to him every day about this situation? That won't make the situation better!

These private debtors must be put into a situation where they can devote their energies to new value generating enterprises, whatever they are. The more value they create, the more debts they will be able to settle later.

No comments:

Post a Comment