With the Greek economy in free-fall less than 48 hours before Syriza’s snap referendum begins, it is getting difficult to separate the reams of economic collapse reports coming in from something that would have considered a nightmare or even a hallucination just a month ago. On the fifth day of capital controls the news is all about cascading cash shortages in the domestic market and empty ATMs, import credit cut-offs, tourist cancellations, fuel supply problems and the beginning of devastating supply chain disruptions.
Consider this header in a recent CNN Online article. “The Greek prime minister is bad for business.” Wasn’t this the battle cry of the now-out-of-power former New Democracy/Pasok coalition in the January elections? Of course what they were talking about then was the expectation that Syriza would block privatization plans, destroy business confidence and scare off investors, raise taxes sharply, increase regulation via a reflated public sector, and cool relations with Greece’s key trading partners and of course its creditors. That list seems like a brief snow flurry compared to what Greece has witnessed in the last several days.
Who blew the bottom out of the ship? Completed before the capital controls, the IMF Debt Sustainability Analysis (DSA) that surfaced yesterday pulls no punches on this score: http://www.imf.org/external/pubs/ft/scr/2015/cr15165.pdf. The key conclusion is fairly simple, before the January 2015 election, Greece was on a clear but difficult path to debt sustainability. Everything changed after Syriza arrived, but most important was the obliteration of all of 2015 as a year of reform, recovery and growth (IMF estimates zero GDP growth now which may turn out to be optimistic). Accordingly a follow-on program previously thought to be small change, around 20 billion euros, has now swollen to an estimated 52 billion Euros in additional support over the next three years.
In light of the poisoned relationship between Syriza, the IMF and most of the European Union, a financing package of this magnitude without #Alexit and a more reform-oriented Greek government seems unattainable. But the next days will clearly enlighten us.