Fund was over-optimistic, failed to spot scale of problem and gave impression it was treating Europe differently, says report

The IMF’s handling of the financial crisis in the eurozone has been criticised by the organisation’s own independent watchdog in a report that says the fund failed to spot the scale of the problem, was guilty of over-optimistic forecasts and left the impression that it was treating Europe differently.

While accepting that sorting out the problems of Greece, Ireland and Portugal “posed extraordinary challenges”, the IMF’s Independent Evaluation Office (IEO) said the fund had missed the buildup of banking system risks in some countries and shared the widely held “Europe is different” mindset.

The report looked into how the IMF handled the eurozone crisis, which began with the May 2010 bailout of Greece, but subsequently spread to Ireland, Portugal and Cyprus.

It found that the “IMF’s pre-crisis surveillance identified the right issues but did not foresee the magnitude of the risks that would later become paramount”.

The IEO added that by May 2010 the fund was worried about the risks of contagion and had to “modify” its own rules to allow exceptional financing for the government in Athens.

The terms of the bailouts for stricken eurozone countries were organised by the so-called troika of the IMF, the European commission and the European Central Bank. According to the IEO this was an efficient mechanism for conducting discussions with governments but at the expense of the IMF’s “characteristic agility as a crisis manager”.



Greece has seen the size of its economy shrink by about 30% over the past six years, a much worse performance than the fund anticipated. The IEO concluded that “IMF-supported programmes in Greece and Portugal incorporated overly optimistic growth projections; lessons from past crises were not always applied”.

Noting that conducting the evaluation had been “challenging”, the IEO said there had been a lack of clarity about what it could or could not evaluate. “The IMF’s handling of the euro area crisis raised issues of accountability and transparency, which helped create the perception that the IMF treated Europe differently.”

The IEO made five specific recommendations, including that the fund’s management and executive board should develop procedures to limit political meddling in the organisation’s technical analysis; that processes should be strengthened to ensure agreed procedures are followed and only changed after careful deliberation; and that there should be a renewed commitment to accountability and transparency.

Christine Lagarde, the fund’s managing director, said: “Overall, the conclusion I draw is that the fund’s involvement in the euro area crisis has been a qualified success.”

Lagarde added that the crisis in the euro area was unprecedented and that fund-supported programmes had “succeeded in buying time to build firewalls, preventing the crisis from spreading, and restoring growth and market access in three out of four cases” (Ireland, Portugal and Cyprus).

The IMF managing director admitted that with the benefit of hindsight, assumptions about growth in Greece had proved much too optimistic.

“Greece, however, was unique: while initial economic targets proved overly ambitious, the programme was beset by recurrent political crises, pushback from vested interests, and severe implementation problems that led to a much deeper than expected output contraction.

“On the other hand, Greece undertook enormous adjustment with unprecedented assistance from its international partners. This enabled Greece to remain a member of the euro area – a key goal for Greece and the euro area members.”

Lagarde said she did not accept that there had been political interference in the fund’s technical analysis but gave the IEO recommendations either full or qualified backing.

“In summary, the crisis in the euro area was extraordinary,” Lagarde said. “It posed unprecedented challenges that, with the global financial crisis providing tinder, could have rapidly spread through Europe and beyond. The fund, in conjunction with our membership, our partners in Europe, and the wider global community, took steps that averted what could have been a much more severe European and even global crisis.”

