Wall Street Journal
July 14, 2011
Here’s how to do it: Keep changing the assumptions!
We noticed this late yesterday, when the International Monetary Fund put out its fourth comprehensive review of Greece’s bailout, which authorized the distribution of another slug of aid from last year’s €110 billion bailout.
The IMF’s computation of Greece’s debt sustainability–that is, whether Greece’s rising debt pile will stop growing and start shrinking–shows slightly different numbers than the analysis by the European Commission, which is the IMF’s partner in lending to Greece. (More on those differences later.)
That got us looking at the commission’s own reports. Its fourth review, released in early July, concluded that Greece’s debt is sustainable, despite serious fiscal challenges, if Greece sticks to the EU/IMF austerity plan. The debt will peak at 161.3% of gross domestic product in 2012 and decline thereafter.
This calculation relies on a number of inputs; two essential ones are Greece’s assumed rate of GDP growth (faster growth raises the denominator of the debt ratio) and the assumed fiscal surplus (money from a surplus pays down the debt, shrinking the numerator of the ratio).
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