Financial markets have reacted favourably to Greece’s good convergence prospects and the spread between the 10-year yield on government bonds and German bunds in February was around 98 basis points, compared with 196 basis points in March 1999 and 425 basis points in September 1998.
We can get that savings from the private sector by decreasing consumption relative to income or from the public sector by decreasing spending relative to taxes. In that context, the prospect of large federal government deficits stretching out into the future looks worrisome.