Earlier we mentioned a bombshell report in the FT about a secret memo circulated in Europe, which admitted the truth about the Greek bailout: Reform measures are killing the economy, and there’s a good chance that the country will never get its public debt under control.
What’s also interesting is that the memo is still using very rosy assumptions about Greek economic growth.
FT Alphaville has posted the whole memo, and it’s fairly gruesome.
One chart that really shows how optimistic everyone’s still being (and this was flagged by Felix Salmon as well) is simply the projected GDP path for Greece.
Without any jolt, stimulus, or anything, Greece is magically set to return to growth fast (as the chart below shows).
The report does acknowledge:
The Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned in the baseline. Greater wage flexibility may in practice be resisted by economic agents; product and service market liberalization may continue to be plagued by strong opposition from vested interests; and business environment reforms may also remain bogged down in bureaucratic delays. On the policy side, it may take Greece much more time than assumed to identify and implement the
necessary structural fiscal reforms to improve the primary balance from -1 per cent in 2012 to 4½ per cent of GDP, and concerning assets sales, delays may arise due to market- related constraints, encumbrances on assets, or political hurdles. And of course a less favourable macro outcome would itself further hurt policy implementation prospects.