Back to Berlin

German Chancellor Angela​ Merkel visited Athens yesterday for six hours. It wasn't clear why Mrs. Merkel was going, and, now that she has returned to Berlin, it isn't clear why she went. During the press conference following her talks with Greek Prime Minister Samaras, the Chancellor reiterated Germany's commitment to retaining Greece in the Euro zone, and that the Greek government must continue with its austerity policies. Hardly news.

Her visit, which sparked the usual protests in the streets, replete with a few protestors dressed as Nazis, was a prelude to an expected update in early November from the "troika", officials from the European Central Bank, the IMF and the European Commission, who must decide if Greece is fulfilling (yet) the terms of its bailout loans. An additional payment of $40 billion is at stake. The money is apparently urgently needed - Prime Minister Samaras was quoted as saying that without the payment, Greek finances could hold out "until the end of November, then the till will be empty".

Here's the issue. Greek GDP has been falling for 5 years, and there is no prospect of a resumption of growth anytime soon. The official unemployment rate is 24%, and over 50% for youth. Greek outstanding debt, which was cut significantly in March when private, sovereign bondholders were forced to forgive $126 billion, is nonetheless approaching 170% of GDP, the second highest ratio in the world after Japan's 230%. Devaluing its currency, a typical move by heavily-indebted countries attempting to adjust, is not an option, as Greece exists within the straight-jacket of the euro.  Even with an additional $40 billion loan from the troika, the Greek economy, in its current depressed state, simply cannot sustain such debt levels​. Another semi-default, at least, is inevitable, perhaps as soon as next year.