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24th Jun 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".

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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.

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