Counterparties: International Monetary Fail
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The International Monetary Fund is now on record saying what everyone realizes about the Greek bailout: it didn’t work very well.
Market confidence was not restored, the banking system lost 30% of its deposits and the economy encountered a much deeper than expected recession with exceptionally high unemployment.
The report is interesting not only because of its authorship. It’s a well-written and informative read, and Pawel Morski points out that stands to reason: self-flagellation is “turning into a bit of a habit” at the IMF. (See the Argentine and Asian editions.)
The European Commission is defending policies that have become plainly indefensible. Choosing to restructure Greece’s debt earlier would have led to a “systemic contagion”, a commission spokesman said, failing to note the impact of delaying a restructuring. Mario Draghi offered an odd dismissal that simply characterized the report in Rumsfeldian terms: “These mea culpas are a mistake of historical projection. You judge things that happen yesterday with today’s eyes”.
The IMF has gone through policy course corrections before. It was a long-time supporter of austerity and anti-inflation measures. In April, the IMF published its World Economic Outlook, and became, as Neil Irwin puts it, “among the strongest voices against excessive fiscal austerity and tight money”. (Although the Fund is still asking France to cut government spending.) It supported the initial Cyprus rescue plan, and then, in the face of widespread domestic and international criticism, worked to create a small depositor-friendly plan. Additionally, despite producing top-notch research on the negative effects of income inequality, the Fund doesn’t really take them to heart in terms of policy.
Mohamed El-Erian concludes a fault line lies between the Fund’s respected analysis, on the one hand, and policy execution that bows “to pressure from its political masters in advanced economies”. — Ben Walsh
On to today’s links:
And, of course, there are many more links at Counterparties.