Economy

Report: Greece Needs Another 30 Billion And Two More Years

Greek PM Antonis Samaras
Greek PM Antonis Samaras
Cerstin Gammelin and Alexander Hagelüken

BRUSSELS - Greece needs at least two more years and an additional 30 billion euros in order to be able to meet the targets set for it by the euro zone countries, European sources tell Süddeutsche Zeitung.

When – and indeed if – the country gets money from the second bailout package is unclear. In the words of one high-level EU diplomat: “We now have a fundamental problem.”

High-level diplomats confirmed on Monday in Brussels that Greece would remain for longer than initially planned on the euro zone financial drip. The country will presumably not be able to pay its way from 2015, as planned, without additional financial help.

Greece will also not be able to meet its target of being able to refinance its debt entirely on financial markets from 2020. According to both Brussels and European national banks, Athens needs "at least two years" more to get back on its feet, and they both put the new financial hole at "some 30 billion euros."

Meanwhile, the matter of whether (and if so when) the country, which is on the brink of bankruptcy, gets a further tranche from the second bailout fund remains open. That would put up to 130 billion euros of euro zone and International Monetary Fund (IMF) money at Greece’s disposal, but it is only supposed to be paid when Greece meets its targets, so that it can stand on its own two feet from 2020 onwards.

Should that not be the case, IMF statutes call for payments to be discontinued. However, were the IMF to step back, there would no longer be any basis for some single-currency-zone countries, Germany among them, to continue paying.

German veto

To try and find a way out, at a recent meeting of euro zone finance ministers in Cyprus, IMF boss Christine Lagarde proposed giving Greece more time to put into effect the requisite reforms, and that the euro countries take over the additional costs. This was refused by several countries including Germany.

European central bankers say that the underlying cause of the present situation is that crisis-shaken Greece has gone into the second aid package with a hole of more than 10 billion euros, and Athens is failing to implement numerous measures as planned -- for example, reformation of the tax system and the sale of state property.

And now Prime Minister Antonis Samaras is asking for two additional years to fulfill austerity requirements. Because of the catastrophic state of the Greek economy, which has been shrinking for five years, Samaras says it is not in the realm of possibility to cut government spending so quickly. He fears that, if he does, unemployment will rise even more.

According to central bankers, Greece’s standing as a euro zone country continues to be very iffy. While other member countries wanted to keep Athens in, public skepticism is making governments reluctant to come up with the extra money. And yet as one national bank source put it: "If Greece is to stay in the zone, the governments are going to have to come up with 30 billion euros."

The big worry now is that the governments want to push responsibility onto the European Central Bank (ECB) that made emergency funding of 3.5 billion euros available to Greece this past August and holds some 40 billion euro in Greek government bonds.

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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