Saturday

21st Apr 2018

Critical IMF report heralds new Greek bailout battle

  • IMF director Christine Lagarde. "The IMF's handling of the euro area crisis raised issues of accountability and transparency," the report says. (Photo: Dutch Government/MARTIJN BEEKMAN)

A new International Monetary Fund (IMF) report has criticised the fund's management of the eurozone crisis and could make more difficult future talks with the EU over the Greek bailout.

The IMF's own watchdog, called the Independent Evaluation Office, admits in a report published on Thursday (28 July) that "the IMF’s handling of the euro area crisis has been controversial".

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

It notes that in Greece, Ireland and Portugal, the fund "identified the right issues but did not foresee the magnitude of the risks that would later become paramount".

It says that "the most conspicuous weakness of the IMF-supported programs in the euro area was their lack of sufficient flexibility" and that "an increasingly unworkable strategy was maintained for too long".

In Greece and Portugal, the report says that "the IMF-supported programs incorporated overly optimistic growth projections".

It says that "more realistic projections would have made clear the likely impact of fiscal consolidation on growth and debt dynamics".

The most critical assessment is about the most important programme among the eurozone crisis, the Greek debt crisis and the two bailouts programmes in which the IMF participated.

"There was no rigorous attempt to articulate a convincing path to restoring debt sustainability in Greece, other than a program of official financing, fiscal adjustment and structural reforms,” the reports says.

The report is also critical of the involvement of the IMF alongside EU institutions.

It says that the so-called troika between the IMF, the European Commission and the European Central Bank "proved to be an efficient mechanism in most instances" but that the IMF "lost its characteristic agility as a crisis manager".

'A qualified success'

"At the euro area level, IMF staff’s position was often too close to the official line of European officials, and the IMF lost effectiveness as an independent assessor," it says.

The IMF chief Christine Lagarde said in a statement that the report showed that the IMF's involvement in the eurozone crisis "has been a qualified success".

"In the face of this unprecedented systemic challenge, Fund-supported programs succeeded in buying time to build firewalls, preventing the crisis from spreading, and restoring growth and market access in three out of four cases (Ireland, Portugal, Cyprus)," she said.

Lagarde admitted that Greece "was unique".

"While initial economic targets proved overly ambitious, the program was beset by recurrent political crises, pushback from vested interests, and severe implementation problems that led to a much deeper-than-expected output contraction," she said.

But the "key goal" of keeping Greece in the eurozone has been achieved, she added.

The report comes as the IMF is still considering whether or not participate in the Greek third bailout launched last year.

Europe treated differently

It said in May that the IMF executive board would take its decision before the end of the year on the basis of the fund's own assessment of the Greek debt and the need for debt relief.

The debt issue has been the most controversial between the fund and the EU, with the IMF calling for more relief.

It is also central to the fund's watchdog's critical report.

"In May 2010, the IMF executive board approved a decision to provide exceptional access financing to Greece without seeking preemptive debt restructuring," the report recalls.

It also says that during the crisis the fund's board was "not fully kept informed" and that "the IMF’s handling of the euro area crisis raised issues of accountability and transparency, which helped to create the perception that the IMF treated Europe differently".

It recommends that in the future, "the executive board and management should develop procedures to minimize the room for political intervention in the IMF’s technical analysis".

Internal pressure

The assessment and recommendation, as well as criticism over the cooperation with the EU, could make more difficult the decision over a participation in the third bailout.

IMF experts have said that the Greek debt was not sustainable without more measures.

If the EU doesn't agree on further debt restructuring, any agreement on a bailout participation would be politically-based rather than based on a technical assessment.



In her statement, Lagarde said that she did "not accept the premise of the recommendation" and did "not see the need develop new procedures".

The report, however, could put more internal pressure to harden the IMF's position in its upcoming discussions with the EU institutions and member states over the need for Greek debt relief.

Interview

'Greece has become a small problem'

One year ago Greek voters rejected austerity in a referendum, but got it anyway. For one Greek scholar, that bailout has created a window of opportunity for recovery.

EU and IMF agree debt relief for Greece

Greece's creditors will take measures to reduce the cost of debt repayment and for the first time say debt could be reduced in the future. They also decided a €10-billion new loan.

Macron and Merkel pledge euro reform

France and Germany have pledged to forge a joint position on euro reform by June, despite German reluctance on deeper monetary union.

News in Brief

  1. Audit office: Brexit 'divorce' bill could be billions higher
  2. MEPs urge better protection for journalists
  3. Dieselgate: MEPs back greater role for EU in car approvals
  4. European parliament adopts new organic farming rules
  5. EU granted protection to half million people in 2017
  6. Report: Facebook to carve 1.5bn users out of EU privacy law
  7. Greek court ruling permits migrants to travel to mainland
  8. Commonwealth summit hopes for trade boost after Brexit

Stakeholders' Highlights

  1. Nordic Council of MinistersWorld's Energy Ministers to Meet in Oresund in May to Discuss Green Energy
  2. ILGA EuropeParabéns! Portugal Votes to Respect the Rights of Trans and Intersex People
  3. Mission of China to the EUJobs, Energy, Steel: Government Work Report Sets China's Targets
  4. Martens CentreJoin Us at NET@WORK2018 Featuring Debates on Migration, Foreign Policy, Populism & Disinformation
  5. European Jewish CongressKantor Center Annual Report on Antisemitism Worldwide - The Year the Mask Came Off
  6. UNICEFCalls for the Protection of Children in the Gaza Strip
  7. Mission of China to the EUForeign Minister Wang Yi Highlights Importance of China-EU Relations
  8. Nordic Council of MinistersImmigration and Integration in the Nordic Region - Getting the Facts Straight
  9. Macedonian Human Rights MovementMacedonians in Bulgaria Demand to End the Anti-Macedonian Name Negotiations
  10. Counter BalanceThe EIB Needs to Lead by Example on Tax Justice
  11. ILGA EuropeTrans People in Sweden to be Paid Compensation for Forced Sterilisation
  12. International Partnership for Human RightsThe Danger of Standing Up for Justice and Rights in Central Asia

Latest News

  1. ECJ ruling set to end 10-year 'mouth tobacco' lobbying saga
  2. Whistleblowers, Syria and digital revolution This WEEK
  3. MEP friendship groups offer 'backdoor' for pariah regimes
  4. Macron and Merkel pledge euro reform
  5. Obscurity surrounds EU military fund's expert groups
  6. New EU party finance rules short circuit accountability
  7. Draghi to stay in secretive 'lobby' group
  8. Bulgaria offers lesson in tackling radical-right populists

Stakeholders' Highlights

  1. Mission of China to the EUChina and EU Must Work Together to Promote Global Steel Sector
  2. Swedish EnterprisesEU Tax Proposal on Digital Services Causes Concern for Small Exporting Economies
  3. Europea Jewish CongressCondemns the Horrific Murder of Holocaust Survivor Mireille Knoll in Paris
  4. Mission of China to the EUAn Open China Will Foster a World-Class Business Environment
  5. ECR GroupAn Opportunity to Help Shape a Better Future for Europe
  6. Counter BalanceControversial Turkish Azerbaijani Gas Pipeline Gets Major EU Loan
  7. World VisionSyria’s Children ‘At Risk of Never Fully Recovering', New Study Finds
  8. Macedonian Human Rights MovementMeets with US Congress Member to Denounce Anti-Macedonian Name Negotiations
  9. Martens CentreEuropean Defence Union: Time to Aim High?
  10. UNESDAWatch UNESDA’s President Toast Its 60th Anniversary Year
  11. AJC Transatlantic InstituteAJC Condemns MEP Ana Gomes’s Anti-Semitic Remark, Calls for Disciplinary Action
  12. EPSUEU Commissioners Deny 9.8 Million Workers Legal Minimum Standards on Information Rights