The IMF on Wednesday admitted to significant failures in the first Greek rescue that forced a second, larger bailout and left the country in a deep recession.
However, the global lender placed much of the blame on its Greek and European partners, saying they were unprepared for the crisis and the harsh choices — including a deep debt restructuring — that may have made the first bailout work better.
The IMF said in a review of the 2010 rescue that it overestimated both Greece’s debt sustainability and Athens’s ability to implement structural reforms.
It said there were some problems coordinating with the European Commission and the European Central Bank, its troika partners in the 110 billion euro (US$144.3 billion) program, and that they lacked expertise and harmonized goals.
The European Commission was more focused on European issues than the Greek situation alone, it said.
“The fund’s program experience and ability to move rapidly in formulating policy recommendations were skills that the European institutions lacked,” it added.
The IMF, which has been assailed by member countries for committing huge funds to what some fear is an open-ended rescue, defended its actions as necessary to keep the Greek crisis from spreading through Europe and elsewhere.
“Given the danger of contagion, the report judges the program to have been a necessity, even though the fund had misgivings about debt sustainability,” it said.
At the time there was “a tension between the need to support Greece and the concern that debt was not sustainable with high probability.”
That forced the fund to lower its own standards to approve the bailout, but even then, it admitted, it used data that was too optimistic.
The result was the much more drastic second rescue last year, which included the sweeping debt restructuring rejected the first time around.
“There were also notable failures. Market confidence was not restored, the banking system lost 30 percent of its deposits and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment,” the review said.
“Public debt remained too high and eventually had to be restructured... Competitiveness improved somewhat on the back of falling wages, but structural reforms stalled and productivity gains proved elusive.”
In a remarkable admission, the fund said the troika members had significant problems harmonizing their aims and roles, in part due to the Europeans’ lack of experience in sovereign rescues.
There was no clarity over which troika member was responsible for what, and the European Commission was more focused on ensuring compliance with EU standards than on figuring out how to revive Greek growth, the review said.
However, the two sides were also split on their focus, as the IMF traditionally deals only with single country economies in its rescues.
Meanwhile the European authorities, with Greece a member of the single currency union, “emphasized the extent of possible spillover effects within Europe.”
The IMF also pointed to the EU’s bureaucratic approach.
“The European Commission 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.