It’s All Greek

Greece is adopting severe austerity measures yet is not making enough structural changes to its economy to boost log-run growth to “grow out” of its problems. If Greek growth remains weak, and with Europe in a recession bank on it, Greece must run huge budget surpluses, which are socially impossible, to stabilize its debt-to-GDP ratio. As a result, more severe debt write-downs are a must, otherwise this crisis never goes away.