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EU rejects IMF criticism on handling Greek crisis
Thursday - 6/6/2013, 3:09pm EDT
BERLIN (AP) -- Two of the main institutions in charge of managing Europe's debt crisis have clashed over whether mistakes were made in the handling of Greece's debt woes.
The European Commission, executive arm of the 27-country European Union, Thursday firmly rejected a report from the International Monetary Fund on the Greek bailout, adding that it "fundamentally disagrees" with some of its findings.
The EU Commission, the IMF and the European Central Bank form the so-called troika of creditors that manages the bailouts for several countries in the 17-nation eurozone.
The IMF said in its report Wednesday there had been "notable failures" in the way Greece's 240 billion euro ($310 billion) bailout was handled, admitting that it had underestimated how much austerity measures would worsen the country's economic plight. Greece is now in its sixth consecutive year of recession and unemployment has risen to 27 percent.
The IMF said one of the setbacks in the bailout process over the past three years was that debt restructuring followed the bailout with a long two-year lag and in the interim, private investors were paid off in full with bailout funds while other lenders took losses in the restructuring.
On Thursday, a spokesman for the Commission hit back. Simon O'Connor told reporters that if Greece's debt had been restructured before the country was granted its first bailout in 2010, there would have been "devastating consequences" that would have destabilized the rest of the euro countries.
"We fundamentally disagree," O'Connor said.
"The report ignores the interconnected nature of the euro area member states. A private-sector debt restructuring would have certainly risked systemic contagion," he added.
Greece has been locked out of international bond markets since early 2010, when investors became worried about its excessive public debt levels. Many feared the country would have to leave the group of 17 EU countries using the euro currency.
The debt burden was eventually restructured last year, once eurozone leaders felt confident that such a step wouldn't cause excessive turmoil in financial markets. Restructuring debt involves paying investors less than what they are owed. There were concerns that such a move made any earlier could have made investors worry about bond investments across the rest of the region.
The public dispute over the Greek deal highlighted how the three troika partners are increasingly at odds over key issues. Several EU policymakers, for example, have recently hinted that the bloc should be able to handle future financial emergencies without the IMF's involvement.
The IMF itself in the report also stated there is a "need to find ways to streamline the troika process in the future."
The IMF's spokesman Gerry Rice, however, sought to appease the dispute again Thursday, telling reporters in Washington "the troika has worked well and the troika is working well."
Still, the Commission also strongly rejected the IMF report's claim that Greece has not been aggressive enough in pursuing growth-enhancing structural reforms -- such as making the labor market more flexible -- that were demanded from the Greek government in return for its bailout.
"This is plainly wrong and unfounded," insisted O'Connor, the spokesman for the EU's top economic official, Olli Rehn.
Greece had to push through deeply unpopular austerity measures including income cuts, tax increases and overhauls to its bloated public sector in return for the bailout loans.
Greek Prime Minister Antonis Samaras said he did not want to evaluate the IMF report's merits and that the only thing of importance for him was "to achieve our targets, get it over with."
"In other words, get out of the crisis as soon as possible and this will certainly be a success for Greece. I believe it will also be a success for Europe as well," Samaras told reporters during a visit to Helsinki, Finland. "When we finish the job I think then we will be able to review the whole process, appreciate the strong and weak points."
O'Connor acknowledged that designing and implementing the bailout for Greece was "a learning process," but insisted that the troika acted unanimously and that its approach is now bearing fruit.
"Today the reform program is on track and there are growing signs of stabilization and increasing confidence in Greece," he said.
In its analysis, the IMF also acknowledged that -- when faced with the threat of an implosion of the eurozone that would have sent shivers through the world economy -- one of the preconditions for granting the emergency loans was not met -- that there was a high probability the Greek government would be able to fully repay its debt burden on time.
Analysts say that Greece's debt burden -- which is set to rise to 175 percent of its annual output this year -- is still unsustainable, and its official creditors from the eurozone will have to forgive some of their loans to the country in the coming years.
Matti Huuhtanen in Helsinki and Marjorie Olster in Washington contributed reporting.
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