Greece is essentially in default

The continuing struggles of Greece are discussed in the NY Times and other outlets such as Naked Capitalism.  The main focus is on the size of interest payments required, 6%-8% of GDP at Greece’s current financing rates, and the impossibility for Greece to meet these payments.  What’s not mentioned is that at current oil price level Greece, which is a net oil importer, needs to come up with an additional $12-$15 billion annually.  Combining the funds outflow from the high interest rates and for oil, that requires Greece to somehow magically overcome a 12% current account deficit before it does anything else.  Oil prices are as likely to increase from here a they are to decease, so if Greece is not pushed into default now, sooner or later……something will have to crack and the rising price of oil just may be the catalyst. In any case, the math simply does not work for Greece unless the creditors take some sort of haircut. Every $10 per barrel increase in oil negatively impacts Greece’s current account deficit by $1.6 billion, or about 0.5% of GDP. Also, at current oil prices, Greece is shelling out about $12 billion annually, or close to 4% of GDP for oil – it’s not like it can squeeze this figure down….they actually need to build in cushion in case this number increases, so basically, something else has to give, like interest payments.

When Greece succumbs to default (the Prime Minister is still maintaining the line that actual default remains a nuclear option he does not wish to pursue; he’s in denial), next on the hit list will be other EU countries with high debt, large current account deficits and relatively high oil imports.  If I can get to it, I will run a screen and do a post.

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