Latest Greek Debt Deal Doesn't Solve the Problem

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		Tuesday, November 8, 2011 Latest Greek Debt Deal Doesn't Solve the Problem by Ian Wyatt Stocks soared the last week of October after European Union leaders announced a deal that will cut Greece's mounting debt load in half. But does this solution actually solve the underlying problem of too much Greek debt? The rescue plan includes another 130 billion Euros in bailout money courtesy of the International Monetary Fund (IMF) and euro zone, plus a deal that convinced certain private investors in the European Union to voluntarily take a 50 percent loss on their Greek bond holdings. In theory, the deal will prevent the damage to the debt-ridden country from spreading further to other countries and reduce Greece's debt to a still very sizable 120 percent of GDP by 2020. While still high by global standards, the future debt load will be reduced from where it currently stands at 180 percent of Greece's GDP, so it is still a step in the right direction. As it did in previous Greek bailouts - the country already received a 110-billion euro bailout a year ago - the market briefly embraced the latest rescue until Greek Prime Minister George Papandreou proposed a public referendum on the deal. He promptly withdrew the proposal last Friday in the face of a no-confidence vote, and now Papandreou is expected to relinquish his prime minister seat in the face of heavy scrutiny. But the deal is little more than a band-aid that will only temporarily stop the bleeding. Greece's debt load is so great that a default remains inevitable. And with some yet-to-be-determined Greek bond-holders accepting 50 cents on the dollar, it's obvious that while Greece may avoid default in the conventional sense of the word, the country sure isn't making its bond investors 'whole'. Greece has been racking up debt for years - decades really. Public sector workers' wages nearly doubled in the last 10 years. Pension payments to retirees ballooned to 92 percent of pre-retirement salaries - one of the most generous pension systems in the world. And tax evasion has long been an epidemic in Greece, making it exceedingly difficult for its government to offset its considerable spending through tax revenues. Click here to read more >>   VISIT OUR SPONSOR Harvard's Investment Secret While regular investors continually make the same mistakes over and over, the billionaire foundations at Ivy League schools like Harvard and Yale invest differently. In fact, one of their biggest secrets lets them ignore the markets 99% of the time - only coming into the market on rare occasions to seize outsized gains. Click here to read the amazing true story of how the world's smartest investors manage their money.
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