IMF report details botched Greek bailout

The bailout of Greece was bungled because it was an attempt to save the single currency rather than the debt-stricken country, according to a highly critical International Monetary Fund report.

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.