What happened to GREECE? 

1.  THEY WERE BROKE - Greece was unable to pay the interest due on its sovereign debt in 2010 and was near default.  The country would have been unable to make interest payments last year to its bondholders (i.e., banks  and private investors) had it not received an emergency 3-year loan totaling 110 billion euros (worth approximately $157 billion assuming a conversion rate of 1 euro = $1.43) (source: BTN Research).   

2.   THE STRUCTURE OF THE LOAN - The 110 billion euro loan was put together by Greece's Euro zone partners (80 billion euros) and the International Monetary Fund (30 billion euros).  The 110 billion euros was to be paid to Greece over 3-years through a series of tranches.  A total of 53 billion euros from 4 separate tranches has been paid to Greece as of 6/13/11.  The # 5 tranche (worth an additional 12 billion euros) is scheduled to be paid to Greece on 6/29/11 (source: BTN Research).     

3.   ARE WE GREECE? - Greece's national debt as a percentage of the size of its economy was 140% in 2010 and is projected to be 160% in 2012.  The USA's national debt as a percentage of the size of our economy was 62% in 2010 and is projected to be 74% in 2012.  National debt is defined as "debt held by the public" and does not include intergovernmental debt (source: Euro stat, Congressional Budget Office).       

4.   WHAT THEY AGREED TO - In order to obtain its 110 billion euro loan, Greece had to agree to tax increases and spending cuts to reduce the size of its projected annual deficits.  Specifically, its projected annual deficit for 2011 was to be no greater than 7.5% of the size of the Greek economy and its projected annual deficit for 2015 is to be no greater than 1% of the size of its economy.  The USA's annual deficit for 2011 is projected to be 9.8% of the size of our economy and our projected annual deficit for 2015 has been estimated to be 3% of the size of our economy (source: BTN Research, Congressional Budget Office).             

5.  THE IMPACT TO GREECE - The austerity measures implemented by the Greek government (i.e., tax increases and spending cuts) have had an impact on the financial system of Greece.  The Greek economy contracted by 4.5% in 2010 and the country's unemployment rate rose to 13.9%.  Greece is now in the 3rd year of a recession (source: Center for International Finance & Development).     

6.  DESPERATE - In addition to tax increases and spending cuts, Greece agreed in 2010 to privatize some of its 75,000 state-owned assets (ports, buildings, real estate), i.e., sell or lease the assets (source: FT).       

7.  BAD RISK - Moody's lowered its rating on Greek debt 3 notches from "B1" to "Caa1" on 6/01/11.  A rating of "Caa1" is defined as indicating a 50% chance of default by the borrower over the next 5 years (source: Moody's).   

8.  WHAT IS AT RISK - Greek government bonds outstanding today total 327 billion euros, equal to 150% of the size of the Greek economy (source: Reuters).    

9.  SHUT OUT - Greece has been virtually unable to return to the financial markets to borrow money.  The yield on the Greek 3-year note was 25% and the yield on the 10-year note was 16% on 6/2/11 (source: Thomson Reuters).    

10.   CONTAGION - If Greece would default on its sovereign debt, the bond market may conclude that Ireland and Portugal (countries that received bailouts in the last 8 months) will also ultimately default (source: BTN Research).  

11.   RIPPLE EFFECT - Banks in Germany and France own 700 billion euros of sovereign debt from Greece, Ireland and Portugal.  If the German and French banks are forced to write down a significant portion (e.g., 50%) of their sovereign debt holdings (in the event of a Greek, Irish or Portuguese sovereign debt default), that action will reduce the banks' capital amount, reducing the banks' ability to make future loans to individuals and companies.  This would have a direct negative impact on the economic recovery of Europe (source: Financial Times).      

12.  WE'RE MAD AS HELL - Thousands of Greek citizens have been conducting anti-austerity protests in Athens since 5/25/11.  On Monday 6/06/11, 500,000 citizens protested (i.e., the 13th consecutive day of protests), demanding a restructuring of the terms of the original 110 billion euro loan (source: BTN Research).   

13.  CHANGE THE TERMS - Restructuring of the 110 billion euro loan (e.g., an extension of maturities or a reduction of interest paid) could technically trigger a default of the Greek public debt (source: BTN Research).     

14.  NEED MORE - Greece has determined that the original 110 billion euro loan from 2010 is not sufficient and that they need another 60 billion euro loan, i.e., 30 billion in 2012 and 30 billion in 2013 (source: BTN Research).    

15.  GENEROUS - Greek businesses are forced by its government to offer early retirement to 580 different private sector jobs, including hairdressers and radio hosts, adding to corporate debt levels (source: NY Times).