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European commission 'fundamentally disagrees' with the IMF's main criticisms of the way the Greek debt crisis was handled
The European commission strongly refuted the withering criticism of the International Monetary Fund on Thursday, arguing that it had not mismanaged its handling of the Greek crisis.
Simon O'Connor, a spokesman for Olli Rehn, the commissioner handling the 2010 bailout, said Brussels "fundamentally disagrees" with the IMF on two of the central points raised by the Washington institution – that Greece's debt should have been restructured at the very outset of the crisis and that the commission failed to do enough about structural reforms in Greece.
Early debt restructuring, said O'Connor, could have triggered "systemic contagion" across the eurozone. On structural reforms, he added, "this is plainly wrong and unfounded."
In an internal report released on Wednesday evening, the IMF conceded that a catalogue of blunders had been made in the dealings with Greece by the "troika" of officials from the IMF, the commission and the European Central Bank.
The report charged that the Europeans were inexperienced and amateur in their approach.
O'Connor conceded that "lessons have been learned" from the chastening experience.
"Of course, looking back we see what might have been done differently," he said, without highlighting where changes could or should have been effected. "This is a learning process."
Unlike the IMF report, there was no criticism from the commission of its own performance, although O'Connor said that a "full report" into the work of the troika over the past three years was being prepared. He did not say when it would be published.
The spokesman emphasised that the IMF criticism was contained in an internal IMF staff document and did not represent the official position of the IMF board.
In Athens, though, the IMF's admission was welcomed by finance minister Yannis Stournaras. He told the Guardian that the "good report" would help Greece to recover from the trauma of recent years.
"It is a good piece of self-criticism. It is an objective report reporting mistakes made by the international community and by Greece," Stournaras said.
IMF and commission at odds over debt restructuring
The IMF criticism and the commission's defence of its performance boil down to a dispute over whether Greece's staggering debt level should have been restructured early in 2010 when the troika was fixing the terms for the bailout.
While the IMF takes the view now that it was a cardinal error not to restructure, the commission argues strongly that there were too many unknowns, the risks were huge, such a move could have unleashed a rollercoaster of panic across the eurozone, and there was not yet any real eurozone firewall or bailout funds in place.
"Even assuming it was inevitable and the only solution, the risks associated with an early Greek debt restructuring were huge," according to the commission. "The whirlpool in the financial markets in early 2010 was only beginning to subside, the banking system was extremely fragile and it was not possible to estimate financial and psychological effects of the largest bond restructuring in history or its potential ripples to the real economy of the euro area. Against this background, later restructuring allowed for time to build firewall capacity. An earlier restructuring would have also entailed risks of systemic contagion."
50-page report released
The IMF's report runs to 50 pages (pdf). It reveals that the Fund lowered its own standards for debt sustainability to keep Greece's bailout within its rules. It also admits underestimating the full impact of austerity on the Greek economy,
As the report put it: "Market confidence was not restored, the banking system lost 30% of its deposits and the economy encountered a much deeper than expected recession with exceptionally high unemployment."
The 2010 bailout was followed by the second rescue package in 2011, in which private sector creditors agreed to write off a chunk of Greece's debt pile.
Martin Koehring, European analyst for the Economist Intelligence Unit, believes the IMF is looking to put pressure on European governments to agree another haircut.
"There is also a risk that the IMF is positioning itself to withdraw from the rescue programme altogether, especially if eurozone debt relief is not forthcoming," Koehring added.
Sharon Bowles, chair of the European parliament's economic and monetary affairs committee, said the IMF needs to learn the lessons from Greece, having also made mistakes over Cyprus's rescue this year. Fund officials should also be quizzed in public, she argued.
"The troika will also need to become more democratically accountable, above all else to the European parliament. It is not possible that decisions which strike at the very heart of a country continue to be taken without the proper level of accountability," Bowles said.