The very austerity measures that Greece implemented to remedy its sovereign debt crisis have crippled its economy so badly the country is actually sinking deeper into the red, making default all but inevitable.
Already suffering from a four-year-old recession, the Greek economy has been dragged down further by the series of austerity measures – tax increases combined with cuts in pensions and wages. As a result, the Greek economy is expected to contract 5.5% this year and 2.5% in 2012.
The Greek government announced this week that unemployment soared to 16.5% in July, up from 12% a year earlier. It's expected to rise to 17.5% before the end of this year.
With its gross domestic product (GDP) shrinking, Greece has less money to repay its debts, and worse, it must continue borrowing at higher interest rates.
Greece's debt-to-GDP ratio is expected to rise to 162% this year and 181% in 2012.
"Without drastic action, [Greece's] debt-to-GDP ratio will rise to even more alarming levels," a Milken Institute report on the Greek debt crisis said earlier this month. "The ratio is reaching levels at which it becomes extremely difficult, if not impossible, for a country to avoid default on its debt."
Even the "troika" of Greek lenders – the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB) – concluded in a report released yesterday (Thursday) that the troubled country's "debt dynamics remain extremely worrying."
"When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated given the delays in the recovery, in fiscal consolidation and in the privatization plan," the report said.
The report also expressed concern that Greece's budget deficit for 2011 will fall between 8.5% and 9% of GDP, which exceeds the target of 7.75% of GDP set by the troika as a condition for granting the most recent batch of bailout loans.
To continue to meet the troika's criteria for still more bailout loans – which Greece must have to avoid default – even more austerity measures will be needed.
But the Greek public, as well as many politicians, has displayed more resistance with each new set of austerity measures.