Greece & Goldman-Sachs… When the EU was created and the concept of a single currency, one key issue is there are strict rules to prevent member countries from out-spending each other and causing inflation for the other countries. The rule is that member states cannot have a deficit of more than 3% of their GDP and not more than 60% total debt.
Greece’s socialist / union dominated goverment ran a deficit of 12% of GDP in 2009 – what is surfacing in the past day or two is that Goldman-Sachs facilitated some long term currency swap transactions to mask an even larger deficit. Greece is in crisis.
You may be wondering – if 3%/60% are the EU’s rules, how did the U.S. do in 2009? The US budget runs Sept to Sept… The 2009 deficit was 9.92% and for 2010 is projected at 10.64%. Total US government debt is around 86% of GDP.
Both of those numbers are ratios and are considered “safe” based on an assumption that GDP will grow from year to year. What happens if it drops drastically? Between 1929 and 1933, GDP dropped around 30%…
