There’s lots of talk of a sovereign debt crisis, as we read in Crikey yesterday.

But why, after all the ballooning debt burden across the world isn’t new and the bonds are being consumed by an eager and worried audience of banks and other investors?

For a reason, perhaps take a look at Greece, which, with the recent change of government, has revealed what can only be described as a significant worsening in the country’s economic health.

So bad was the cover-up that the state of Greece’s finances have gone from being very poor, to on the verge of being catastrophic.

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The realisation has seen the Greek financial markets weaken in the past week.

It now looks like is heading down faster than the other sick men if Europe (Ireland, among the developed economies, plus Latvia and Estonia).

In fact, recent articles in The Economist and in other London media suggest Greece’s plight is far worse than previously reported.

Forget the drama in the Telegraph article, but concentrate on the thought that a member country of the EU and the European Central Bank managed to get away with fudging a set of very important figures for so long.

Before the election in September, the budget deficit was estimated at 6.7% of gross domestic product, after the election, it was revised up to 12%. Now that could be a case (usual) of the new government blaming the old and having a clean out.

But there are a couple of additional points that suggest not.

While the eurozone grew in the third quarter by 0.4% (0.2% for the EU area), Greece’s economy remained in the red, shrinking by 0.3%. the UK, Ireland and Spain are other EU economies in a similar position, but they at least have a reason, the lingering impact of big housing busts and wobbly banks.

Taxes fell “collapsed almost totally” is one phrase in The Economist, and the old government went on a spending spree to try and buy votes ahead of an election it called early, and then realised it was heading for a loss.

Last year’s  GDP now grew at 2%, not the 2.9% estimate of the previous government and as a result, Greece went into recession in the first quarter of 2008 when GDP fell 0.5%, not grew 0.3% as reported by the previous government.

By the way, the state statistics office isn’t independent, like the Australian Bureau of Statistics is here.

The EU says Greece’s public debt will rise from 99% of GDP in 2008 to 135% by 2011, without drastic cuts in spending and taxes rises. 18 billion euro of the government’s public debt comes due in the second quarter of next year, hence the emerging worries about a possible default by the country. The IMF says Greece’s economy will contract by 0.1% in 2010, one of the few economies expected to be negative next year.

The current account deficit is running at about 14%-15% of GDP at the moment (probably worse), external debt is 144% of GDP (according to the IMF). 200 billion euros of that debt is held by banks in the eurozone, which means more pressure on banks.

Tourism has fallen by 20%, according to some reports, wages rose 12% in 2008-09 in the last year of the conservative government.

Because it’s in the euro, it can’t devalue its way out the mess: the straitjacket controlled by the ECB (and currently being tightened by the weakening US dollar), means Greece (and possibly Ireland to follow) is in a very, very hard place.

As a Crikey subscriber and someone who began working as a journalist in 1957, I am passionate about the importance of independent media like Crikey. I met a lot of Australians from many walks of life during my career and did my best to share their stories honestly and fairly with their fellow citizens.

And I never forgot how important it is to hold politicians to account. Crikey does that – something that is more important now than ever before in Australia.

North Stradbroke Island, QLD

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