Brussels, 06/06/2013 (Agence Europe) - On Thursday 6 June, the European Commission tried as well as it could to defend the way the Greek crisis has been managed, following publication of a report by the International Monetary Fund highlighting failures during the Greek programme.
Saying that a more detailed analysis would be made once the full report on the Commission's work with its troika partners (European Central Bank and IMF) has been published, Simon O'Connor, spokesman for Euro Commissioner Olli Rehn, said the Commission had, nonetheless, expressed doubts about two issues raised by the IMF.
The first is on the debt writedown, that the IMF wanted to be done in 2010. He said the Commission “fundamentally disagrees on this point”.
In its report, the IMF said it looked unlikely from the outset that Greek debt could be brought to a sustainable trajectory in the medium-term, but, making an exception to its rule number 2, the IMF decided to take part in the programme.
The IMF report says that one way of making the debt prospects more sustainable would have been to restructure it upfront in 2010, but “the initial euro-area position that debt restructuring was off the table was eventually reversed, although this took a considerable length of time.”
“On this point, the reports ignore the interconnected nature of the euro area member states, private sector debt restructuring risked systemic contagion if done at that stage; it would have undermined the programme,” explained O'Connor
Secondly, the Commission disagrees with the IMF's claim that not enough had been done to identify growth-enhancing structural reforms. O'Connor said that, from the start, the Commission had been a major driving force for a strong focus in the programme for ambitious structural reforms, building the basis for growth and job creation based on a stable financial system and a more competitive and dynamic economy. He said the report had to be read in its entirety, because later it states that the European institutions have a comparative advantage when it comes to certain structural reforms. As the guardian of the treaties, the Commission can unveil proposals that comply with EU rules but benefit from the greatest possible degree of flexibility.
More generally, the Commission says that the report was not the IMF's official position and certain things needed to be borne in mind: “The troika didn't exist three years ago” and had had to move find its way through “complex challenging issues”, in the face of financial and political pressures and each with its own different traditions and approaches, said O'Connor. He added that it has been a “learning process, looking back with hindsight, with the experience, in an ideal world what might have been done, of course we can assess that. Circumstances were what they were, it was an emergency situation.” He stressed the “damaging spectre of Greek exit, programme off track for many months and problems with implementation, which had significant impact on what actually happened in terms of growth”. O'Connor pointed out that the IMF “had identified notable successes during the programme (containment of spillovers and strong fiscal consolidation”, also pointing out that the crisis had been contained to the eurozone.'
A few months ago, the IMF recognised that it had got it wrong by underestimating the negative impact of the austerity measures and, in the current report, it says that the macroeconomic forecasts were over-optimistic. In the new report, however, the IMF says that for Greece: “It is difficult to argue that adjustment should have been attempted more slowly. The required adjustment in the primary balance, 14½ percentage points of GDP, was an enormous adjustment with relatively few precedents, but was the minimum needed to bring debt down to 120 percent by 2020.”
The president of the ECB, Mario Draghi, said: “One good thing is that the ECB is not being criticised”, going on to say: “Often these mea culpa are a mistake of historical projection. Judge things that happened yesterday with today's eyes”.
In an interview with Greek newspaper Ta Nea, Greek Finance Minister Yannis Stournaras said that it was something positive to learn from one's mistakes. In May 2013, he told this newsletter that the budget measures forced on Greece were rather excessive in terms of the targets fixed and regretted not managing to convince the troika to take account of a more appropriate policy for growth and jobs (see EUROPE 10847). Sharon Bowles (ADLE, UK), chair of the EP's economic and monetary affairs committee, said: “The Troika needs to be rethought. (…). Since Greece, the workings of the Troika have obviously not improved, as the case of Cyprus clearly shows. (…) The Troika will also need to become more democratically accountable, above all else to the European Parliament”. (EL and MB/transl.fl)