Sunday

5th Feb 2023

IMF admits errors on Greek bailout

  • The severe austerity measures imposed on Greece have brought its economy to a standstill (Photo: YoungJ523)

The International Monetary Fund (IMF) has admitted it failed to fully realise the severity of the bailout conditions imposed on Greece.

The Washington-based fund acknowledged making mistakes in its past analysis, overestimating growth projections and rewriting the rules because of fear of Greek contagion.

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“In reviewing what we have done the whole time, there are certainly things we could have done differently,” said IMF mission chief for Greece Poul Thomsen on Wednesday (5 June).

Greece obtained a three-year €110 billion international bailout in May 2010 on condition it would restructure and impose severe austerity measures.

IMF officials had misgivings at the time on the sustainability of the Greek debt but decided to bend its own rules on “exceptional access,” it says in a report released on Wednesday.

Four criteria are needed for exceptional access to the fund.

One of those criteria includes a high probability that public debt is sustainable in the medium term.

But IMF staff favoured going ahead with exceptional access because of the fear that spillovers from Greece would threaten the eurozone and the global economy.

As a consequence, the IMF added a proviso to the criteria.

It said a high risk of international spillover effects provided an alternative justification for exceptional access even when debt is likely to be unsustainable.

Thomsen, for his part, also said growth projections had been too optimistic.

Greece is now in its sixth year of recession with an economy that has contracted by 23 percent. The IMF had projected a 5.5 percent contraction.

Thomsen said the IMF should have had a greater focus on debt reduction in Greece.

The report notes it is difficult to see how Greece could have avoided a severe economic contraction given it lost market access in the first half of 2010. This was compounded by a large fiscal deficit and “onerous” obligations to cut debt.

The deeper-than-expected contraction was not purely due to the fiscal shock, it states.

“Confidence was also badly affected by domestic social and political turmoil and talk of a Greek exit from the euro by European policy-makers,” it says.

Greece has experienced one of the deepest peacetime recessions to afflict an advanced economy. The country's output has contracted 22 percent between the start of the crisis in 2008 and 2012.

Unemployment has soared to 27 percent with youth joblessness hovering over 60 percent.

The Guardian newspaper says the revelations have been seized on by Greek officials in Athens.

"For too long they [troika officials] refused to accept that the programme was simply off-target by hiding behind our failure to implement structural reforms … Now that reforms are being applied they've had to accept the bitter truth," a Greek contact told the paper.

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