Wednesday

20th Mar 2019

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".

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

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.

News in Brief

  1. North Macedonia EU-membership talks set for June
  2. EU ups benefits rights for mobile workers
  3. Chinese leader visits Italy, France as Rome joins 'Silk Road'
  4. EU agrees to sanction political parties breaching data rules
  5. EPP votes Wednesday on future of Orban's party
  6. Nordic MEP candidates in first ever joint EU election debate
  7. Merkel: I will fight to the 'last hour' for orderly Brexit
  8. EU affairs ministers demand Brexit clarity from London

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  2. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  3. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  4. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  5. Nordic Council of MinistersNordic commitment to driving global gender equality
  6. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  7. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  8. Nordic Council of MinistersNordic talks on parental leave at the UN
  9. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  10. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  11. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  12. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership

Latest News

  1. US glyphosate verdict gives ammunition to EU activists
  2. Have a good reason for Brexit extension, Barnier tells UK
  3. EU countries push for new rule of law surveillance
  4. EU rolls out €525m for military projects, but bars illegal tech
  5. May to seek Brexit extension amid UK 'constitutional crisis'
  6. Catalan independence trial is widening Spain's divides
  7. My plan for defending rule of law in EU
  8. Anti-corruption lawyer wins first round of Slovak elections

Stakeholders' Highlights

  1. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  2. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  3. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  4. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  5. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  6. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  7. Nordic Council of MinistersSeminar on disability and user involvement
  8. Nordic Council of MinistersInternational appetite for Nordic food policies
  9. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  10. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  11. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  12. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit

Join EUobserver

Support quality EU news

Join us