At least we're not Greece, and for that we should be thankful. What's happening in that distant part of the world is really a tragedy. Greece is in a depressionary slump. It's been that way since 2010. 'Bailout' funds, debt write-offs and years of austerity have achieved absolutely nothing.

The Greek Finance Ministry have just released updated budget forecasts...and they make for depressing viewing. Public debt as a percentage of GDP will reach 189% next year. Now compare that to what the IMF told everyone it would be back in 2010 after its first bailout...150%. Courtesy of ZeroHedge, you can see the comparisons below. The new forecasts put the Greek government debt-to-GDP ratio at around 190% for the three years, dropping only to around 185% by 2016.

Source: ZeroHedge

In 2013, new forecasts guess that the Greek economy will shrink by 4.5%, with a budget deficit of 5.4%. Unemployment already stands at a depression-like 25%.

Despite the market pretending that Europe is on the mend, it won't be long before the problems in Greece resurface. Things have only become worse...its debt-to-GDP ratio (a measure of debt sustainability) is completely out of control.

There is no other realistic solution for Greece now other than further debt write-downs. The first lot of write-downs - a circa 50% haircut imposed on some private sector holdings of Greek government debt earlier this year - did little to help the country. A major debt restructure, along with ongoing reforms, is the only thing that can get Greece back to a path of sustainability.

If that doesn't happen, expect some sort of revolution in 2013 as extremist political groups wrest control. Then you'll get an outright default, an exit from the euro, and financial markets will turn into the shape of a pear.

But Germany has already ruled out any sort of debt write-down. It has too much skin in the game and for political reasons, doesn't want to take a hit on its Greek debt holdings. Neither do other official creditors like Holland and Finland...it would mean losses for their own taxpayers.

There are no easy solutions. The Troika has spent 2012 pretending that austerity reforms will help Greece (and Spain, and Italy) 'grow' out of its debt hole...but it's just not happening. A prolonged credit boom in the periphery led to the creation of a wholly unproductive economic structure. Where holes appeared in the road, the debt truck turned up and filled them in...no need to change course, just keep on driving.

But of course that was all a mirage too...wealth based on debt is nothing but. Creditors decided to pull the plug on Greece in 2010 and the mirage disappeared. The Troika, being no strangers to delusion, are simply trying to back the debt truck up again...but the hole is now a gaping chasm.

Ok, enough with the bad metaphors. Greece is a basket case and its rescuers are fools. That faint beeping sound you hear is the Greek debacle coming back into the market's radar.

Regards,

Greg Canavan
for The Daily Reckoning Australia