ANALYSING a country’s debt sustainability sounds dry and nerdy. But the analysis the IMF prepared for Greece in late June
spells out the truly tragic consequences of the Greek electorate’s decision in January to vote in a populist government led by Alexis Tsipras, the prime minister and leader of the radical-left Syriza party. Greece has gone from a position where both its economy and its underlying debt position were on the mend, to one where it will need bucketfuls of further rescue finance from official creditors together with more debt relief, the IMF shows.
Worse, these calculations were made before Mr Tsipras’s reckless decision to call a referendum on the terms of a further bail-out (and to campaign for rejecting it). That has inflicted yet more damage on the economy by closing down both the country's banks and its negotiations with creditors, and caused Greece to become the first developed country to default on the IMF (though the Fund more blandly calls this going into arrears). Even if voters on Sunday vote against Mr Tsipras and support the now withdrawn bail-out proposals made by the creditors, the cost of clearing up the mess caused by the Syriza-dominated government has clearly risen dramatically.
Some commentators are now arguing that the Greek economy is simply an economic misfit that is unable to cope with being in the euro area. Certainly the magnitude of the Greek downturn, a fall of 27.4% in GDP from the peak in the spring of 2007 to the trough in late 2013, dwarfs that of any other country. (Portugal, for example, suffered a decline of 9.6% between early 2008 and the start of 2013.)
Yet a recovery did get under way in 2014, and in the third quarter of that year Greece was one of the strongest-growing economies in the euro area. The performance of exports, which had been dismal for most of the past five years (in part because of a global slump in the shipping industry, an exporting mainstay), improved a lot. Exports grew in real terms by 9% last year, helped by a buoyant tourist season.