The IMF May Have Made A Couple Of Small Miscalculations About Greece

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The shadow government will offer a "whoopsie" and a "we're kinda sorry" tomorrow for botching just about everything, re: bailing out Greece.

In an internal document marked "strictly confidential," the IMF said it badly underestimated the damage that its prescriptions of austerity would do to Greece's economy, which has been mired in recession for years.

How did it screw up? Let us count the ways.

It twisted and stretched—and ultimately ignored—its own criteria for qualification. With hindsight, it seems Greece should not have been eligible for assistance. Whoops!

It repeated ad nauseum that Greece's sovereign debt was sustainable. Sorry! It wasn't.

It overestimated the Greeks and their government. Turns out, they weren't as interested in slashing everything at a time of mass unemployment as the IMF had thought. Or hoped. Or made up. Its bad.

It signed off on postponing a restructuring of Greek debt for two full years because some people (read: Angela Merkel) were worried that the Greeks couldn't be trusted with a new credit card. This both prolonged Greece's troubles and made things more expensive for everyone else (read: the Germans). Deepest regrets.

It didn't count very well:

The IMF also said its own analysis of the future development of debt was wrong "by a large margin." The fund's debt-sustainability analysis—a critical piece of forecasting—"included stress tests but these turned out to be mild compared with actual outcomes…."

The IMF had originally projected Greece would lose 5.5% of its economic output between 2009 and 2012. The country has lost 17% in real gross domestic output instead. The bailout plan predicted a 15% unemployment rate in 2012. It was 25%.

All of which, however, misses the most important thing, the conclusion, which is of course that the whole mess wasn't really the IMF's fault after all.

The European Commission, which is the European Union's Brussels-based executive, comes in for special criticism in the IMF document.

The report says the commission "tended to draw up policy positions by consensus, had enjoyed limited success with implementing [fiscal conditions]…and had no experience with crisis management."

It adds that the commission focused more on "compliance with EU norms than on growth impact" and "wasn't able to contribute much to identifying growth enhancing structural reforms…."

The paper criticized Greek governments for failing to implement structural economic changes that could have propped up the private sector and said the pain of the adjustment was "unevenly spread across society…."

The fund didn't explain why it made the choices it did in detail, nor why it agreed to troika analyses that it now says were incorrect. But it said IMF staff "explicitly flagged" risks in the Greek program implementation.

IMF to Admit Mistakes on Greece Bailout [WSJ]

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