Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Why The IMF Must Go Beyond A Mea Culpa Over Greece

Daniel Munevar 30th September 2016

Daniel Munevar

Daniel Munevar

A valuable insight into the conflicts within the IMF and especially between the executive board of the organization and its management and staff has emerged from a recent internal report into the body’s handling of the Eurozone crisis – specifically Greece, Ireland and Portugal. At the hearth of this conflict was the decision-making process, which led to the disregard of technical judgments and internal procedures in favor of choices of a political nature that were adopted in European capitals.

The bulk of the criticism focuses on the IMF’s involvement in Greece starting in 2010. The Independent Evaluation Office (IEO) is especially critical of the political intervention by European countries in the IMF’s decision-making process regarding the Greek program. The most important example of the internal contradictions laid bare was the decision not to restructure Greek debt in 2010. Even though staff members provided warnings regarding the viability of a program that excluded debt restructuring, management disregarded those concerns playing fast and loose with the internal rules of the organization. This included foregoing the option for a debt restructuring without supporting technical evidence and deceiving members of the Executive Board regarding the implications of the program. As senior management of the organization was more preoccupied about addressing the political calculations made in Brussels and Frankfurt than in tackling the significant economic challenges faced by Greece, the result was a program doomed to failure from its inception. First, as one of the IEO background papers points out: “the decision not to seek preemptive debt restructuring fundamentally left debt sustainability concerns unaddressed, magnified the required fiscal adjustment, and thereby— at least in part—contributed to a large contraction of output and a subsequent loss of Greek public support for the program”. Second, the IMF program committed the cardinal sin of creating moral hazard as it facilitated “the most dramatic credit migration from private into official hands in the history of sovereign debt”.

Against this damning indictment, Christine Lagarde has defended the IMF’s actions on the grounds that despite its shortcomings, the program “enabled Greece to remain a member of the Euro Area—a key goal for Greece and the Euro Area members”. From the perspective of the IMF’s articles of agreement, this claim holds little water. Whereas Greece is a country member of the organization, the Eurozone is not. By extension, the IMF should have given priority to the protection of the interests of the former. Instead, the IMF sided with its European shareholders, turning the Greek program into a “holding operation” that gave the Euro area time to build a firewall and prevent contagion while inflicting significant damage on its country member.

Thus, the fact that it was the mainly the Eurozone, and not Greece itself, that stood to benefit from the program should inform any discussion on the distribution of its costs. Not only was Greece left on its own to shoulder the burden of an unsustainable debt but it also became the scapegoat for the failures of both IMF and Euro area governance. Given the clear-cut public good aspect of this type of program, its costs should have been distributed among those who stood to benefit from it. Indeed, as the IMF itself has suggested, “the burden in such circumstances should not fall wholly on the member for whom the program is being granted… but should be shared more widely.”

Sadly, as the recent agreement on Greek debt shows, neither the IMF nor the Eurogroup are anywhere close to assuming responsibility for the damage their policies have inflicted on Greece. Instead, they just insist on extending and pretending. Both the Eurogroup and the IMF continue to refrain from providing the country with specific measures that ensure long-term debt sustainability. While the former has made clear that any concrete measures beyond those agreed last May depend on difficult to attain macroeconomic and structural reform targets (thus shifting the blame of any future “misfortune” onto Greece), the latter is still to decide whether it will participate in the third rescue program for the country. Even though the IMF recently modified again its lending rules, in order to close the loophole that allowed it to participate in the Greek rescue program, it remains unclear what will be the outcome.

On the one hand, IMF staff are making a clear effort at breaking with their past of “panglossian” projections when it comes to fiscal and growth targets for Greece. In its latest assessment of the country, the IMF leaves no ground for uncertainty regarding the problems of the current agreement when it points out that “further debt relief will be required to restore sustainability going well beyond what is currently under consideration”. On the other hand, and despite any degree of optimism that the previous statement might generate, a glance at the history of the IMF shows its tendency to keep its support for failed programs well beyond their expiry date. As the experience of Argentina shows, once a program goes off track, the organization focuses on saving face by refusing to acknowledge failure instead of fixing the underlying problems. More to the point, it’s important to remember that all of the decisions taken by the executive board regarding the Greek program have counted upon unanimous support, with just one exception. In this sense, and given the large voting power of European countries on the board, it’s difficult to see how the IMF could manage to disentangle itself from the Greek program. Without concrete measures to “minimize the room for political intervention in the IMF’s technical analysis” it’s unlikely that the ongoing internal criticism will amount to anything beyond a superficial mea culpa.

Daniel Munevar

Daniel Munevar is a former advisor to Yanis Varoufakis. In the past he worked as fiscal advisor to the Ministry of Finance of Colombia and special advisor on Foreign Direct Investment for the Ministry of Foreign Affairs of Ecuador. He has a Masters in Public Affairs from the LBJ School at the University of Texas at Austin.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

09d21a9 The Future of Social Democracy: How the German SPD can Win AgainHenning Meyer
u42198346 How Trump’s Tariff Regime Fuels Global OligarchyGabriel Zucman
u421983462 041df6feef0a 3 Universities Under Siege: A Global Reckoning for Higher EducationManuel Muñiz
u4219836ab582 af42 4743 a271 a4f423d1926d 0 How Trade Unions Can Champion Solidarity in Europe’s Migration DebateNeva Löw
u421983467298feb62884 0 The Weak Strongman: How Trump’s Presidency Emboldens America’s EnemiesTimothy Snyder

Most Popular Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko
startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer

Eurofound advertisement

Ageing workforce
How are minimum wage levels changing in Europe?

In a new Eurofound Talks podcast episode, host Mary McCaughey speaks with Eurofound expert Carlos Vacas Soriano about recent changes to minimum wages in Europe and their implications.

Listeners can delve into the intricacies of Europe's minimum wage dynamics and the driving factors behind these shifts. The conversation also highlights the broader effects of minimum wage changes on income inequality and gender equality.

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Spring issue of The Progressive Post is out!


Since President Trump’s inauguration, the US – hitherto the cornerstone of Western security – is destabilising the world order it helped to build. The US security umbrella is apparently closing on Europe, Ukraine finds itself less and less protected, and the traditional defender of free trade is now shutting the door to foreign goods, sending stock markets on a rollercoaster. How will the European Union respond to this dramatic landscape change? .


Among this issue’s highlights, we discuss European defence strategies, assess how the US president's recent announcements will impact international trade and explore the risks  and opportunities that algorithms pose for workers.


READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity”,

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

What kind of impact is artificial intelligence (AI) having, or likely to have, on the way we work and the conditions we work under? Discover the latest issue of HesaMag, the ETUI’s health and safety magazine, which considers this question from many angles.

DOWNLOAD HERE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641