In a scathing internal self-assessment of its handling of the 2010 Greece bailout, the International Monetary Fund said Greece’s recession and unemployment problems were more severe than anticipated and admitted to putting the eurozone and the euro’s safety before the interests of Athens.
In the June report, the IMF conceded that it bent its own rules to make Greece’s public debt appear sustainable, and that in retrospect, the country had failed on three of its four criteria to qualify for aid – an admission that could reignite debate about the Fund’s impartiality.
Greece became the first eurozone economy to require an international bailout in 2010, but needed a second round of financial assistance in early 2012 when a deep recession and high-interest payments threatened to send its debt spiralling out of control.
The IMF was part of the so-called troika of international lenders that forced stepped in to keep Athens from defaulting, but also insisted that private sector bondholders write down the value of their Greek bonds in an attempt to bring the country’s debt down to 120 percent of GDP by 2020.
Senior IMF officials, including the Fund’s managing director Christine Lagarde, had in 2010 insisted that Greece’s debt projections were “sustainable” and likely to be repaid in full and on time.
Yet the IMF’s country report said that “even with implementation of agreed policies, uncertainties were so significant that staff were unable to vouch that public debt was sustainable with high probability.”
Some IMF board members criticised the Fund for giving Greece so much money in comparison to the size of its economy, accusing the Washington-based lender of being overly swayed by its European members.
But the IMF stressed that its response to the crisis, coordinated with the European Union, gave the 17-nation euro area "time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy".
The greater beneficiary of the 2010 bailout wasn't so much Greece as the wider euro zone, the document suggested.
While there were successes such as strong fiscal consolidation and Greece remaining in the eurozone, there were also “notable failures”, said the IMF:
The Fund also said staff should be more sceptical about official data provided by Athens.
Greece's economic output in 2012 was 17 percent lower than in 2009, compared with the IMF and EU's initial projection of a 5.5 percent decline. The original growth projections were not marked down until the fifth review in December 2011. The unemployment rate in 2012 was 25 percent, compared with the original programme projection of 15 percent.
In a remarkable admission, the IMF said the troika members had difficulty harmonising their aims and roles, in part due to the European’s lack of experience in crisis management.
“For example, the initial euro area position that debt restructuring was off the table was eventually reversed, although this took a considerable length of time,” it said, adding that the European Commission was more interested in compliance rather than how to revive growth.
The IMF also pointed to the European Union's bureaucratic approach.
"The EC tended to draw up policy positions by consensus, had enjoyed limited success with implementing conditionality under the Stability and Growth Pact, and had no experience with crisis management," it said.