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2016-05-14

The fundamental cause is that the Greek government can’t raise money from the private sector at reasonable rates. Why? Matthew C Klein

According to the latest figures from the International Monetary Fund, the Greek government owes almost 180 per cent of the country’s yearly output and this debt is denominated in a currency the Greek government can’t print.

Creditors rarely get all their money back in those sorts of situations, so they’re demanding high interest rates to compensate for the risk of large losses.

Many borrowers, especially governments and businesses, rarely expect to repay all their debt at once when it comes due, instead preferring to roll over maturing debts into new ones. 

This isn’t usually a problem, since investors generally want to own some fixed income and would whine about asset shortages if all debts were repaid, but it makes these borrowers vulnerable to changes in investor opinion. 




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