EU, IMF trade barbs over Greek bailout

BRUSSELS, Belgium – The European Commission said Thursday, June 6, it disagreed sharply with an International Monetary Fund report that put much of the blame for the failure of Greece’s first debt bailout on Europe, calling some of its findings “plainly wrong”.

“We fundamentally disagree” with the IMF’s view that Greece’s massive debt burden should have been restructured at the outset, instead of waiting until 2012, a Commission spokesman said.

Equally, IMF criticism of efforts to radically reform the Greek economy and put it on the path back to growth were “plainly wrong and unfounded,” spokesman Simon O’Connor said.

The IMF helped bail out Greece as part of a ‘Troika’ with the European Union and the European Central Bank in 2010 and then when that programme failed, again in 2012.

The second rescue, besides much increased aid in exchange for a stinging austerity package, also obliged private sector creditors to take huge losses, thereby slashing Greece’s debt burden by more than a 100 billion euros.

The IMF report admitted to significant failures in 2010 but also put much of the blame on its Greek and European partners, saying they were unprepared for the crisis and the harsh choices — including the debt restructuring — that may have made the first bailout work better.

The IMF said it overestimated both Greece’s debt sustainability and Athens’s ability to implement structural reforms while there were coordination problems with Brussels and the ECB on the 110 billion euro ($144 billion) bailout.

The Commission was also more focused on European issues than the Greek situation alone, it charged.

“The Fund’s program experience and ability to move rapidly in formulating policy recommendations were skills that the European institutions lacked,” it added.

O’Connor said, in what he described as a “very preliminary reaction,” that the objective of the 2010 Greek rescue was stabilisation “so as to ensure that Greece remained in the euro area.

“These aims were shared by all the Troika institutions and Greek government … and they continue to be valid today,” he said.

A debt restructuring in 2010 “would have certainly risked system contagion,” O’Connor said, and “also have severely undermined the programme.

Concerns that any country could be forced out of the eurozone led to foreign investors pulling out of the government bond markets.

The raised the borrowing costs for already vulnerable nations, pushing Portugal into a bailout and nearly Spain and Italy.

O’Connor noted that the IMF report recognised successes too, such as labour market and healthcare system reform and most importantly, “highlights that Greece did not leave the eurozone” — a major achievement.

The Commission will in due course publish its own report, O’Connor said, without giving further details.

The latest exchanges reflect growing EU-IMF differences over how to handle the debt crisis which has pushed the eurozone deep into recession. Ireland and Cyprus have also needed full-scale bailouts after their banks ran into trouble.

The IMF, initially a supporter of tough austerity policies to stabilise government finances, has increasingly put the emphasis on growth and flexibility, a policy change which some eurozone states such as Germany are notably cool on.

Last month, top ECB official Joerg Asmussen went so far as to say that the eurozone should begin to prepare for a “totally European system” for debt rescues, without the IMF.

Asked in Frankfurt about the IMF report, ECB head Mario Draghi said he had not read it but if it had identified shortcomings, then they would have to be taken on board.

At the same time, it was more important to look forward, especially in light of the progress Greece has made.

“Often, mea culpas are a mistake of historical projection and tend to judge things that happened yesterday with today’s eyes,” Draghi added.

For his part, O’Connor stressed that the IMF report was a staff paper and therefore did not represent official Fund policy at this stage.

“We have a very good, constructive relationship with the IMF,” he said. – Rappler.com