Business World

Thursday 18 January 2018

IMF admits 'notable failures' deepened the Greek recession

Bailout of 2010 helped euro area build 'firewall' but Athens suffered huge unemployment

Colm Kelpie

Colm Kelpie

IN a frank assessment, the International Monetary Fund (IMF) has admitted "notable failures" in the first Greek bailout including a deeper-than-expected recession, a run on the country's banking system and exceptionally high unemployment.

The Government insisted, meanwhile, that our bailout will be a template for any future action.

An IMF research paper said the multi-billion rescue package for the stricken country failed to restore market confidence as the country faces its sixth year of recession in 2013, with the jobless rate at a staggering 27pc.

Greece, like Ireland, has had to push through budgetary cuts to meet targets laid down by the troika as well as overhauling its bloated public sector to be able to draw down the bailout money.


The IMF said the 2010 Greek programme gave the euro area time to build a 'firewall' around other vulnerable members, but said not tackling the country's public debt problem decisively at the start created uncertainty about the bloc's ability to resolve the crisis.

Pensioners shout slogans during an anti-austerity rally in Athens
Pensioners shout slogans during an anti-austerity rally in Athens

The IMF pledged about €30bn to Greece at the time, out of a total package of €110bn.

"Market confidence was not restored, the banking system lost 30pc of its deposits, and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment," the IMF report said.

The European Commission hit back at the IMF's look-back report, stating that it fundamentally disagreed with the criticism.

The Department of Finance said it would not be commenting, stating Finance Minister Michael Noonan was focusing on Ireland's bailout.

"If Ireland emerges from the programme later this year with full access to the markets . . . the EU, IMF will look to the success of the Irish programme as a template going forward," said a departmental spokesman.

The IMF report said that it lowered its standards and approved an exceptionally large loan to Greece in May 2010 despite having considerable misgivings about the country's debt sustainability, although it said fiscal adjustment was unavoidable.

The bailout avoided a disorderly default and limited contagion across the eurozone, it said, but accepted that the recession has been deep with exceptionally high unemployment.

The Washington-based organisation also said it may have been overly constrained by working with European leaders in a monetary union, and not focused enough on ensuring political support existed within Greece for the rapid economic adjustments called for under the bailout.

"The programme did not restore growth and regain market access as it had set out to do," the report said.

"Major contributory factors to this lack of success were poor implementation of reform by the authorities, adverse political developments and inconsistent policy signals by euro leaders."

But the European Commission rejected the criticisms in the IMF report about the need for upfront debt restructuring.

"The (IMF) report argues that an upfront debt restructuring in 2010 would have been desirable. We fundamentally disagree," a spokesman for the commission said.

Irish Independent

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