New data from the European Union confirm that some of the countries who have made the most progress in closing their budget gaps have also seen their overall debt loads increase.
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In another testament to the ill-effects of imposing strict austerity measures with no provisions for growth, a recent report from the International Monetary Fund (IMF) confirmed that countries like Greece have seen their debt levels grow as a percentage of the economy.
The economies of all four countries that have accepted bailouts with strict austerity measures attached—Greece, Ireland, Portugal, and possibly soon Spain—have seen their economies contract significantly.
At some point, debt restructuring and even debt forgiveness will have to come into play. As long as interest rates remain high in these countries and economies are not growing, even the most diligent deficit reduction programs will be ineffective.
Greece’s debt to gross domestic product (GDP) ratio has expanded to 170%. Portugal’s has reached 120%. The strongest European economies have resisted forgiving any distressed country debt for fear of political ramifications.
But even the IMF is now calling for some type of relief
for distressed Eurozone countries. It has drawn from its own failed experience of the late 1990s when similar austerity requirements in South Korea, Indonesia, and Thailand backfired.