The History of the IMF and Greece’s Bailout

Ian Talley

While euro zone and International Monetary Fund officials secretly debate how to deal with Greece’s ever-controversial bailout, it might prove instructive to go back to the genesis of the program.

In 2010, the IMF agreed to jointly bailout Athens, despite deep internal divisions over whether it would work. Some IMF staff and nearly a third of the board’s executive directors raised major objections to the bailout’s design. In varying degrees, a raft of executive directors complained that growth projections were unrealistic. Some said debt restructuring was likely needed to ensure success. Many said too much of the painful adjustment burden was placed on the Greeks while asking nothing from its European creditors. Some officials at the IMF questioned whether the program would put too much political and social stress on the country.

But, with the U.S., Germany, France and other major European executive directors fearing that a debt restructuring would hit their banks and cause widespread contagion, the largest IMF shareholders won the day.

“The Greek bailout was not a program for Greece, but for the euro zone itself,” one participant at the 2010 meeting said in a recent interview.

The fund has since said that, while there were clearly some notable successes, “there were also notable failures.”

Under the second bailout, private creditors eventually took a loss on their holdings. But the IMF said last year that without additional debt relief by euro zone governments, Greece’s debt burden could smother the country’s economy.

Greece’s economic adjustment is one of the largest in modern history. For many Greeks, it has been excruciating; youth unemployment in Greece to nearly 60%. Germany continues to lead an effort opposing debt relief.

The Wall Street Journal already published a selection of key excerpts from a host of IMF documents on the 2010 bailout.

But due to popular demand, here’s a full summary of the minutes from the May 9, 2010 meeting prepared by fund officials and marked “Strictly Confidential.” (Highlights and scribbles are by your correspondent.)

The Wall Street Journal, 31/01/2014