The International Monetary Fund has now poured cold water on Greece’s bailout focusing attention on excessive optimism about economic growth. This fundamental error caused other serious misjudgments – about deficit reduction, financial sector stress, the speed of reforms, and debt sustainability. The fundamental error was not the result of bad luck. It was the result of crass stupidity and gross wishful thinking on the part of all actors in the saga.
The IMF now concludes that more debt relief is required than was originally countenanced – some 7 per cent of gross domestic product – to meet the debt sustainability target of 124 per cent GDP in 2020 and of 110 per cent in 2022. This is in addition to the hole of 4 per cent acknowledged in the 2012 agreement, a hole which has yet to be plugged.
In reality, the target of 124 per cent of GDP is…
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