Hans-Werner Sinn outlines the Greek deceptions and their consequences with his patented clairvoyance.

Here are his highlights in slightly edited format:  

• At 14% of GDP, Greece’s latest current-account deficit was the largest of the euro-zone countries after Cyprus.

• The Greek debt-to-GDP ratio stood at 113% by the end of 2009. By the end of 2010 it is projected to soar above 125% (the highest in the Eurozone).

• To avoid large capital outflows, Greece had to offer investors higher and higher interest rates to stay put.

• In January, the interest premium was 2.73 percentage points relative to German public debt. This means Greece will have to pay €7.4 billion more in interest per year than it would have to pay if it could finance its deficit at the German interest.

• The real problem is not the risk premium, but default.  Greece may not be able to find the €53 billion it needs to service its debt that is due in 2010, let alone the estimated additional €30 billion to finance the new debt resulting from its projected 2010 budget deficit. 

• The Greek disaster became possible when its government deceived its European partners for years with faked statistics. In order to qualify for the euro, the Greek government asserted that its budget deficit stood at 1.8% of GDP in 1999, when it is now believed to have been closer to 12.7% (no one really knows how large the deficits have been…). 

• So what Greece got exactly is what it sought to avoid with its dodgy data: the rise in interest-rate spreads for Greek state bonds. 

• How did the deficit explode? Since entering the euro zone in 2001, Greek social-welfare expenditures increased at an annual rate that was 3.6 percentage points higher than that of GDP growth. Pensions in Greece, available after only 15 years of work, reach an incredible 111% of average net incomes. By contrast, in Germany the average pension level is about 61% of average net earnings for people who have worked at least 35 years. 

• If no support comes from abroad, Greece will have to announce a formal debt moratorium, thereby declaring that it will only service part of its debt, as was done by Mexico and Brazil in 1982 and Germany in 1923 and 1948.