The IMF staff documents relating to the “bail out” of Greece make for scary reading.
The scale of the economic contraction being imposed through this “solution” is staggering. On top of 2% contraction of real GDP in 2009, there will be a decline of 9% over the next several years, with 6.6% of that coming in 2010 and 2011.
The unemployment rate – now a high 9.4% – will soon soar past 14% to a peak of 15% in 2012, and come down only gradually.
The fiscal contraction 20101to 2013 will be an additional 11% of GDP on top of the 5% already imposed – a mix of spending cuts (mainly falling on public sector wages and pensions); consumption tax increases; and improved tax collection.
The big hope here is that “internal devaluation” – a polite word for deep private sector wage cuts - will prompt export growth and an improved external balance.