21st Mar 2018

Greek bailouts 'lacked planning and strategy', EU auditors say

  • Protest against austerity in front of the Greek parliament in June 2011. 'Greece’s ability to finance itself fully on the financial markets remains a challenge', say EU auditors. (Photo: EUobserver)

Weaknesses in programme design and economic planning led to the failure of the first two Greek bailouts to help the embattled Mediterranean country finance itself again, the EU Court of Auditors has said.

In a report titled 'the Commission's intervention in the Greek financial crisis' published on Thursday (16 November), the guardian of EU finances recognised that the decision to bail out Greece in 2010 was taken "in a situation of extreme emergency".

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  • Former Greek finance minister Varoufakis. Bailouts were 'impacted by political and economic uncertainties'. (Photo: Council of European Union)

But it noted that "despite a growing number of conditions," the first programme, as well as the second in 2012, "did not adequately prioritise their relative importance and they were not embedded in a broader strategy for the country".

The EU and the International Monetary Fund (IMF) agreed on a €110 billion bailout in 2010, followed by another, €172.6 billion programme in 2012. Greece is currently under a third, €86 billion programme agreed in 2015.

"These programmes promoted reform and avoided default by Greece. But the country's ability to finance itself fully on the financial markets remains a challenge," Baudilio Tomé Muguruza, the report's lead author, told journalists.

He admitted that the programmes "brought "significant fiscal consolidation" and ensured short-term financial stability, and that the financial sector was "substantially restructured".

But that came "at a considerable cost", he said.

The report pointed out that in 2010, "some conditions were vague and did not specify any concrete actions".

Although "conditions became progressively more precise" with the second programme, it was difficult for the Greek government to meet them because they were "not always sufficiently discussed and agreed at the design stage".

'Consequential weaknesses'

Auditors also found "consequential weaknesses, in particular for the assessment of implementation of structural reforms."

Their report noted that "some key measures were not sufficiently justified or adapted to specific sector weaknesses".

It added that for other measures, "the Commission did not comprehensively consider Greece's implementation capacity in the design process and thus did not adapt the scope and timing accordingly".

Auditors also considered that "the programmes' macro-economic assumptions were poorly justified".

They said that "especially in the first programme, the Commission's forecast significantly underestimated the depth of the crisis".

"The Commission's analysis was consistent and based on recent data, but we found a number of methodological weaknesses, particularly in the documentation and justification of assumptions," Tome Muguruza explained.

"Economic forecast is a complex art," he said, adding that the Commission was "wrong" but "generally" not more so than other international organisations at the time.

The auditors noted that "the operational details of the Commission's co-operation with programmes partners, primarily the IMF and the ECB, were never formalised".

They said however that their cooperation was "effective" because experts in the three institutions "were in regular contact" and exchanged information and analysis.

Political and economic uncertainties

When EU leaders decided to help Greece, "the Commission had no experience in the management of such a process," auditors pointed out.

"Procedures were established after almost a year, but they focused on the formal arrangements for approval of documents, information flows and the timeline for disbursements."

The report noted that "there were no specific internal Commission guidelines on the actual design of the programmes' conditions, for example in terms of scope or level of detail".

The auditors, whose mission is limited to supervising the EU's financial management, did not look into how decisions were taken and the programme implemented.

But they noted that "the management of all three programmes was impacted by political and economic uncertainties," with six elections and a change of government without elections in less than six years in Greece.

In particular, the second programme was never concluded, because of the crisis between the newly-elected radical left Syriza government and Greece's creditors in 2015, leading to a gap of 16 months between the last concluded review and the approval of the new programme. 

Thursday's report is the third one by the Court of Auditors over bailouts and assistance progammes in the EU.

Problem with the ECB

Last year, the court said that the Task Force for Greece (TFGR), which was set up in July 2011, had "only mixed results" because of a lack of strategy and a "highly volatile political situation" in Greece.

For their latest report, Muguruza and his team reviewed the action of European Commission's action, but not of the IMF, which is not under its remit.

But while the Commission cooperated with the auditors, who also spoke with other participants to the bailouts, the European Central Bank (ECB) refused to be audited.

The ECB, which has played a crucial role in the three bailouts, said that the Court of Auditors had no mandate to assess its action and "did not provide sufficient amount of evidence".

"It's not the first time we face this kind of problem with the ECB," Muguruza noted.

Greece to get €7.7bn loan next week

The ESM, the eurozone emergency fund, agreed on Friday to unblock a new tranche of aid as part of the bailout programme agreed upon in 2015.

Greece and creditors prepare bailout exit

Greece's creditors agreed to unblock €6.7 billion of new aid by April and to open debt-relief talks, ahead of the end of the programme in August.

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