The Eurozone bailouts: learning more

The Independent Evaluation Office (IEO) for the IMF released its evaluation of the Eurozone bailouts last week. Unfortunately, the excellent report was released on the Thursday of what was for Bureaucristan the last working week before September, and was released as a package with prebuttal of the recommendations by the Fund itself, which diluted its impact. And even in the financial pages of the newspapers, attention was more focused on the banking stress tests which came the following day [UPDATE: good attention to the IEO report from the New York Times]. Nevertheless, the report deserves a long shelf life; below the fold (direct quotes in italics), a selection from its more striking findings: note, these findings may have been documented elsewhere sporadically before, but one value of the report is collecting them all in one place and integrating them into a broader narrative.

1. IMF staff participated in a confidence-building investor roadshow for Greek Debt in 2010: In September 2010, [Fiscal Affairs Department] published a paper arguing that, for “today’s advanced economies,” including “peripheral” euro area countries, “default would not be in the interest of the citizens” (Cottarelli and others, 2010). During the same month, IMF staff members joined the Greek authorities to defuse investors’ fears by holding road shows in London, Paris, and Frankfurt, stressing the viability of the IMF-supported program (Hope and Oakley, 2010; IEO interviews). [paragraph 61]

2. The IMF Board has never met to discuss how it should participate in bailouts for countries that are members of the euro currency unionFirst, even though the possibility of engaging with a euro area country in a program relationship became real in early 2009 (when IMF staff raised the issue informally with the Irish authorities), no Executive Board meeting ever took place to discuss, let alone articulate, how the IMF could engage with a euro area country in a program relationship. [paragraph 34]

3. Ireland essentially had no coverage by the IMF during 2007-2009: In the
event, between mid-2007 and early 2009, there was no substantive contact between the Fund and the Irish authorities as regards the nature, extent and policy implications of the economic and financial crisis that was starting to emerge. In the absence of a mission chief, staff work on Ireland was essentially limited to monitoring of developments by the desk officer. [background paper on Ireland, paragraph 47]

4. Nevertheless, the Fund seems to have correctly recognized the need for a program immediately upon reengaging, but the government resisted for nearly 2 years. From early 2009, IMF staff informally inquired about the Irish authorities’ possible interest in a precautionary financial arrangement from the IMF. [paragraph 17]

5, There are missing or absent materials from key internal discussions in the Fund about the Greek bailout during 2010: IMF management had earlier established small, ad hoc staff task forces to explore various contingencies, but the work of these groups was so secret that few within the institution knew of their existence, let alone the content of their deliberations. The IEO has seen some, but not all, of the written reports prepared by these groups. [the afore referenced paragraph 34]

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