Everything You Need To Know About Greece According To Goldman Sachs

A new report by Goldman Sachs analyst Marty Young focuses on what investors need to know about the ongoing turmoil surrounding Greece.

Debate over the fate of Greece is as heated as ever within the financial community.

In the new report, Goldman breaks down the current state of Greece, what factors make the path forward so difficult and what three scenarios the world should be prepared for.

Where Are We Now?

Things in Greece have gone from bad to worse over the past several years.

According to the report, real Greek GDP has contracted by 25 percent since 2007. During that same time, the country’s debt-to-GDP ratio has ballooned to 180 percent, well above its 2007 level of slightly above 100 percent.

“Despite various austerity measures, Greece still runs a budget deficit and faces deposit outflows,” Young added.

What's The Big Deal?

While Greece’s real GDP has contracted by 25 percent, public sector employment has also fallen by 25 percent since 2009. In addition, the country has endured wage declines, high unemployment rates across the board and anti-austerity backlash from its citizens.

The country’s creditors, on the other hand, are hesitant to agree to another bailout after five years of negotiations. Many worry that another bailout would also set a dangerous precedent when it comes to other struggling Eurozone countries, such as Spain.

Where Does Greece Go From Here?

Fundamentally, Goldman believes that Greece needs to devalue by 30 percent. Goldman’s base case is a scenario in which no Greece deal is imminent.

As things get progressively worse, the market will eventually force a deal sometime in the future.

In addition to Goldman’s base-case scenario, the firm also sees a near-term deal that involves “kicking the can down the road” or a Greece default and exit from the Eurozone as other potential outcomes.