The Greek rescue program is seriously derailed. By the end of this year, the economy will be a fifth smaller than it was five years ago, and the government is forecasting another 4.5 percent decline in 2013. This figure may once again prove overly optimistic.
The collapse helps to explain the high drama involved this week, as the Greek government tries to drive through parliament a double dose of austerity in the teeth of recession, and the country’s international creditors worry over whether to give the country its next 31 billion euros ($40 billion) of life support, rather than let it default on debt repayments later this month and crash out of the euro.
Given such a desperate situation, it’s all the more surprising that Greece continues to borrow abroad at a stunning rate. The current account deficit, a measure of external borrowing for the country as a whole, was 21 billion euros in 2011, or about 10 percent of gross domestic product. While it slowed somewhat in 2012, Greek borrowing still ran at an annualized rate of 14 billion euros in the first half of the year.
The continued borrowing is often overlooked in the debates over how to rescue Greece, and it indicates that the effort to avoid default is doomed.