Commission and IMF clash on influence of politics over bailout programmes
Since the IMF was called to bail out eurozone economies in 2010, its involvement has not been without controversy.
Tensions between the IMF and EU reached critical levels in June 2013, when the IMF accused the bloc of lacking the experience and skills to manage bailout programmes.
In the July 28 report, the IMF’s Independent Evaluation Office said that “at the euro area level, IMF staff’s position was often too close to the official line of European officials, and the IMF lost effectiveness as an independent assessor”.
In order to regain some independence and strengthen its position vis-à-vis the EU, the watchdog recommended developing “procedures to minimise the room for political intervention” in the IMF’s technical analysis.
“The credibility of the IMF comes from the technical competence and independence of its staff, and the managing director must ensure that its technical work is protected from political influence,” the IMF’s internal auditors said.
The European Commission on Friday (July 29) noted not only the strong links between technical experts and politicians in the crisis years but also highlighted the influence of politics on the bailout discussions.
“A programme for stabilising the euro area, as well as for stabilising Greece in particular, is far from a purely technical issue. It is certainly and eminently political issue,” Commission spokesperson Annika Breidthardt said.
She recalled that the bailout plans were discussed both at technical and, at the same time, at political level, as the eurozone finance ministers (the Eurogroup) and the EU leaders took the major decisions after getting input from the IMF, the Commission and the European Central Bank experts (the Troika). The EU and IMF’s rescue programmes in Greece, Ireland, Portugal, Spain and Cyprus have been criticised by various parties over the last years.
In a report published in February 2014, the European Parliament said that the “preliminary inconsistency of goals” between the IMF (internal devaluation) and the Commission (fiscal consolidation) depressed the rescued economies.
The poor policy mix was the result of the political discussions held in the Eurogroup, MEPs said.
Early this year, the EU Court of Auditors concluded that the design of the programmes was “generally weak”.
The auditors recommended the Commission and the ECB set “procedures for the quality review of programme management and content” and “formalise inter-institutional cooperation with other programme partners” such as the IMF.
The Commission said back then that recommendations “very seriously”, and changes on top of those already made.
The IMF’s Managing Director, Christine Lagarde, reacted it would take the consider further to the recommendation to prevent political interference by saying that, “I do not accept the premise of the recommendation, which the Internal Evaluation Office failed to establish in its report, and thus do not see the need to develop new procedures”.
Meanwhile, the independent probe into the IMF’s handling of European bailouts found that it bent its rules and was vulnerable to political pressure as it embarked on the illfated 2010 Greece rescue.
The Fund too readily accepted the ECB and Commission’s decision to not restructure Greece’s massive debt, which would have lightened Athens’ financial burden, before embarking on the first EUR 110 billion bailout.
“The IMF was kept on the sidelines in late 2009 and early 2010 when approaches to dealing with the developing crisis in Greece were being debated in Europe,” the IEO report said.
“By the time the IMF was invited to provide its expertise and financing in late March 2010, the option of debt restructuring at the programme’s outset was off the table.”
Debt restructuring was later required after the first bailout programme failed, and even now, the IMF is demanding its European partners reduce Greece’s debt load if it is to join the third rescue programme.
The IEO added that the IMF reliance on Troika partners left it lacking flexibility, unable to change course when the Greece programme stumbled early on.
“IMF management and staff, having decided not to push for debt restructuring for Greece, did not make a case for it when the programme’s likelihood of success increasingly came into doubt, starting from the autumn of 2010.”