The task the Greek government has set itself — sorting its finances, quelling increasing civic unrest — appears to rank somewhere between cleaning the Augean stables and killing the Lernean Hydra.
Well, maybe. In any event, Deutsche Bank analysts led by Thomas Mayer believe the Greek’s “structural adjustment program to consolidate its public finances and boost external competitiveness” is “Herculean” in scope.
From Deutsche on Wednesday (emphasis ours):
• the costs of the adjustment in terms of lost output could be larger than policymakers currently anticipate.
• Where policymakers see GDP growth of -0.3% in 2010, we believe growth could be closer to -4.0% and the economy could contract by as much as 7.5% in total over 2010 – 2012. Policymakers expect unemployment to rise to just over 10.0%, where we expect an increase to nearly 20.0% before the adjustment is complete.
• The adjustment process is not impossible –a number of advanced economies have managed adjustments of similar magnitudes, and frequently with output losses far smaller than we forecast. The key risk would be if Greece were unwilling to accept the near-term adjustment costs, hoping that their current difficulties could be solved via external assistance.
And some non-reassuring charts:
Alas, Prime Minister George Papandreou is no Greek demigod. We hope he is up to the challenge.
Hercules and the Hydra
Related links:
Prodi-ing Greece along: ‘it’s all wonderful’ – FT Alphaville
Go Greece tightening… – FT Alphaville
There’s always Schadenfreude, Greece – FT Alphaville
Moody’s explains Greece – FT Alphaville