November 5, 2011
The warning was clear: Greece was spiraling out of control.
But the alarm, sounded in mid-2009, in a draft report from the International Monetary Fund, never reached the outside world.
Greek officials saw the draft and complained to the I.M.F. So the final report, while critical, played down the risks that Athens might one day default, with disastrous consequences for all of Europe.
What is so remarkable about this episode is that it wasn’t so remarkable at all. The reversal at the I.M.F. was just one small piece of a broad pattern of denial that helped push Greece to the brink and now threatens to pull apart the euro. Politicians, policy makers, bankers — all underestimated dangers that seem clear enough in hindsight. Time and again over the last two years, many of those in charge offered solutions that, rather than fix the problems in Greece, simply let them fester.
Indeed, five months after the I.M.F. made that initial prognosis, Prime Minister George Papandreou of Greece disclosed that, under the previous government, his nation had essentially lied about the size of its deficit. The gap, it turned out, amounted to an unsustainable 12 percent of the country’s annual economic output, not 6 percent, as the government had maintained.
Almost all of the endeavors to defuse this crisis have denied the overarching conclusion of that I.M.F. draft: that Greece could no longer pay its bills and needed to drastically cut its debt.
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