The IMF has released a preliminary debt sustainability analysis for Greece — undertaken before this week’s cash crisis but after its adjustments to the numbers to take account of the deterioration in the relationship between Greece and its creditors since January. The document can be read cynically as the IMF using Syriza as an excuse to dump all the unrealistic assumptions in their earlier calculations, but it’s still helpful in spelling out those assumptions — which were there for everyone to see. Arguably the most incredible scenario was for growth (see Box 2):
What would real GDP growth look like if total factor productivity (TFP) growth were to remain at the historical average rates since Greece joined the EU? Given the shrinking working-age population (as projected by Eurostat) and maintaining investment at its projected ratio of 19 percent of GDP from 2019 onwards (up from 11 percent currently), real GDP growth would be expected to average –0.6 percent per year in steady state. If labor force participation increased to the highest in the euro area, unemployment fell to German levels, and TFP growth reached the average in the euro area since 1980, real GDP growth would average 0.8 percent of GDP. Only if TFP growth were to reach Irish levels, that is, the best performer in the euro area, would real GDP growth average about 2 percent in steady state.
That last assumption — 2 percent long-term growth — was the one that was actually in the program until now! These are of course results from an economic model that could be right or wrong. But that’s part of the political challenge of these lending programs: undertake massive effort on “reforms” and you might, if everything else goes well, get a not-especially-exciting growth rate. And the voters on Sunday don’t even know which set of “reforms” they are voting on, let alone their long-term consequences.
UPDATE: Note that the debt sustainability analysis is on the ballot on Sunday!