IMF report details botched Greek bailout
The internal report on the handling of the Greek crisis detailed errors which led to the IMF breaking three out of four of its own rules on lending money to bankrupt countries. It also admits the impact of austerity policies in Greece was underestimated as European Union institutions and leaders tried to save their political skins at the expense of the Greek economy.
The report, leaked to the Wall Street Journal, explained in 2010 the IMF lent €36 billion to Greece despite a risk "so significant that staff were unable to vouch that public debt was sustainable".
While the IMF scaled back its contribution to a second Greek bailout in 2012, amid growing concerns over whether debt could be paid back without devastating economic consequences, its loan to Greece is the largest ever in the fund's history, relative to the size of the recipient country's economy.
Most damaging is the IMF admission that the bailout was not drawn up to help Greece but was a "holding operation" that "gave the euro area time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy".
The fund criticises the delay in restructuring Greece's massive debt load, which eventually came in May 2012, two years after Greece's original bailout deal.
The IMF document reveals a decision to write off the country's debt, making it more sustainable and reducing the economic impact of austerity, was delayed because it was too "politically difficult" for countries whose banks held Greek bonds.
The prevarication also cost eurozone taxpayers dearly because during the two-year period between May 2010 and the summer of 2012, when a "haircut" was finally agreed, the debt burden had shifted from private banks to EU governments and the IMF.
The failure to write down Greek debt while it was privately owned increased the amount Greece would have to pay back and led to a second €130 billion bailout in 2012.
However, the report fails to explain why the IMF agreed twice to bail out Greece. The IMF report is scathing about the so-called "troika", a body created when the fund joined forces with the European Commission and the European Central Bank to run the first €110 billion Greek bailout in 2010.
The "troika" oversees the economies of the other bailed eurozone countries - Ireland, Portugal and Cyprus.
For 18 months, until December 2011, the troika failed to revise Greek austerity targets, effectively making them impossible to achieve as the economy in Greece worsened more than the forecasts suggested.
Frequently Asked Questions about this Article…
The leaked IMF internal report is highly critical, saying the Greek bailout was bungled because it aimed to save the euro rather than Greece. It details errors, admits austerity impacts were underestimated, and states the IMF broke three out of four of its own lending rules in the process.
According to the report, in 2010 the IMF lent €36 billion to Greece despite a risk 'so significant that staff were unable to vouch that public debt was sustainable.' The report suggests the loan was partly a 'holding operation' to give the euro area time to build a firewall to protect other members and avert wider economic fallout.
The report criticises the delay in writing down Greek debt until May 2012. That two-year delay shifted the burden from private banks to EU governments and the IMF, increasing costs for eurozone taxpayers and contributing to the need for a second €130 billion bailout in 2012.
The 'troika'—the IMF, the European Commission and the European Central Bank—ran the first €110 billion Greek bailout in 2010 and later oversaw programmes for Ireland, Portugal and Cyprus. The IMF report is scathing about the troika, saying it failed to revise Greek austerity targets for 18 months up to December 2011, effectively making them impossible to achieve as the economy worsened.
The IMF document says decisions—such as delaying a debt write-down—were postponed because they were 'politically difficult' for countries whose banks held Greek bonds. In some cases political concerns took precedence over measures that would have made debt more sustainable sooner.
The report notes that the IMF’s loan to Greece was the largest in the fund's history relative to the recipient country’s economy. Although the IMF scaled back its contribution to the 2012 package, its involvement in the 2010 loan of €36 billion was unusually large given Greece’s economic size.
A 'haircut' refers to writing down debt held by private creditors. The report explains that the delayed agreement to take a haircut—finally reached in May 2012—meant the debt burden shifted from private banks to public sector creditors, increasing costs for governments and the IMF.
The report highlights that crisis management can be influenced by political priorities, that delayed restructuring can raise costs for taxpayers and lenders, and that institutions may underestimate economic impacts of austerity. For investors, these findings underscore the importance of monitoring sovereign debt sustainability, policy responses, and potential contagion effects within a currency area like the eurozone.
Call 1300 880 160
Start a chat
Schedule a call
