By: Dr. mike Campbell

Greece’s Eurozone partners had made it clear that they would not approve the next tranche of the EU/IMF bailout funding unless the Greek parliament passed a further set of austerity measures.

The vote was held yesterday and went through by 155 to 138 votes which highlights the deep divisions that austerity provokes both within parliament and the wider Greek community. The result was not well accepted on the streets of Athens. The unions had called a 48 hour strike to coincide with the vote and anger and violence spilled onto the streets when the vote was announced.

Had the Greeks failed to pass the legislation, a default on their €340 billion debt (well, part of it, at any rate) would have been inevitable since they would not have had the funds to meet current obligations.

The population of Greece is somewhat over 11 million which means that the national debt is roughly €30900 per citizen – the reaction of the Greek people seems to be one of “I don’t remember spending that!” Of course, the debt mountain was not created overnight and Greece is certainly not the most indebted nation; that dubious honour belongs to Japan. The Americans have their own problem of a vast national debt and are currently at theoretical risk of a default since their politicians have yet to agree an extension of US borrowing without which the US government will be unable to meet its obligations.

The difference between Japan, the USA and Greece is one of confidence. Despite the magnitude of the Japanese and American debts, the market is (currently) confident that they will be able to meet their obligations.

As a consequence of this, Japan and America are required to pay a much lower rate of interest to raise money through bonds on the open market. With regard to Greek debt, the market is very concerned that a default is likely which drives up the interest charge that Greece would be asked to pay were it to go to the market.