Greek bond yields show their spending cuts weren't deep and fast enough

September 08, 2011 4:56 PM

Financial markets have recently lost much of the little faith they had in the Greek government’s ability to repay its debt. A bond promises to pay the bearer a fixed sum on a fixed date. One year bonds are those where the due date is one year on from now. Yields on these have rocketed to 96 per cent on Greece’s one-year government bonds, meaning investors are only prepared to pay just over half the value of the promised payment due in a year’s time.

The Greek government simply cannot borrow money at a sensible rate, because it has borrowed too much for too long and its public spending cuts are too slow and too shallow. The Treasury’s Budget 2011 forecasts predicted that the government would pay almost £50 billion on debt interest this year. British bond yields are less than one per cent. Britain’s economic position is much more stable than Greece’s, but the Greek experience does show what happens when governments which spend too much money fail to cut public spending deep and fast enough.

Take a look at our Real National Debt paper and watch the video below to find out more about how much debt the Government really owes.

[iframe http://www.youtube.com/embed/jGAdzE13qMI 485 393]Financial markets have recently lost much of the little faith they had in the Greek government’s ability to repay its debt. A bond promises to pay the bearer a fixed sum on a fixed date. One year bonds are those where the due date is one year on from now. Yields on these have rocketed to 96 per cent on Greece’s one-year government bonds, meaning investors are only prepared to pay just over half the value of the promised payment due in a year’s time.

The Greek government simply cannot borrow money at a sensible rate, because it has borrowed too much for too long and its public spending cuts are too slow and too shallow. The Treasury’s Budget 2011 forecasts predicted that the government would pay almost £50 billion on debt interest this year. British bond yields are less than one per cent. Britain’s economic position is much more stable than Greece’s, but the Greek experience does show what happens when governments which spend too much money fail to cut public spending deep and fast enough.

Take a look at our Real National Debt paper and watch the video below to find out more about how much debt the Government really owes.

[iframe http://www.youtube.com/embed/jGAdzE13qMI 485 393]

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