It is refreshing that the IMF is now prepared to accept that it could have done things differently. It is regrettable that Brussels would, apparently, do the same again
Ever since the start of Europe's sovereign debt crisis, there have been tensions between the International Monetary Fund and the other two legs of the troika - the European commission and the European Central Bank. The Europeans never really wanted the Fund to be involved in the first place, fearing that this would be tantamount to allowing the Americans to meddle in affairs that did not concern them. When it came to the nitty-gritty of deciding the terms of bailout packages, the Fund was much more willing to cut crisis countries some slack: it was the commission and the ECB that wanted the conditions to be draconian.
The Fund now thinks mistakes were made in the case of Greece. It believes there should have been a debt writedown accompanying the financial rescue in 2010. It accepts that unrealistic assumptions were made about Greece's ability to cope with austerity, and in retrospect would have allowed Athens longer to bring down its budget deficit. In Brussels yesterday there was no such contrition. The commission "fundamentally disagrees" with the Fund that early debt restructuring would have helped and still believes, despite a slump of Great Depression proportions, that the approach was right.
This simply won't wash. The proof that mistakes were made in the Greek bailout of 2010 is that a second bailout was needed in 2012 when the country was caught in a debt death spiral of plunging activity and rising interest rates. It is refreshing that the IMF is now prepared to accept that it could have done things differently. It is regrettable that Brussels would, apparently, do the same again in the event that Greece needs a third bail out.
If there is a next time, though, the Europeans may be on their own. As Martin Koehring, European analyst for The Economist Intelligence Unit, notes, this was more than a mea culpa from the Fund. It was an attempt to put pressure on the Europeans to write down Greece's debt, with an implied threat that the IMF will withdraw from the programme altogether unless the hardliners in Frankfurt and Brussels agree.
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