IMF Europe director: Eurozone leaders responded to crisis only when countries were on the brink of collapse

As reported by Kathimerini (link in Greek), according to an article published yesterday by Agence Europe, during a closed door meeting on the 28th of January, Reza Moghadam, the Director of the IMF’s European Department, told the European Parliament Committee for Economic and Monetary Affairs (ECON) that eurozone leaders waited until the countries facing fiscal difficulties were on the brink of collapse before taking action. According to Moghadam, excessive delay was due to the fact that the Europeans failed to appreciate how critical the situation had become.

Furthermore regarding Greece Moghadam said that from 2010 the IMF asked for an immediate restructuring of Greece’s debt but it was the ECB that had refused.

The IMF minutes, recently leaked to the Wall Street Journal and El Pais, revealed in writing for the first time the extent of disagreements between the Fund and the ECB and European Commission in the handling of the crisis. Some IMF directors ‘lamented’ the fact that Greece’s debt restructuring was avoided in order for European financial institutions to be bailed out. The IMF documents also confirmed that the Greek government, for reasons that are still unclear, sided with the ECB and ruled out a haircut.

The statements from Moghadam support other evidence showing that the IMF under Dominique Strauss Kahn in 2010 believed that only through an early restructuring of Greek debt could the crisis be effectively handled, however this proposal was opposed by European leaders including, strangely, the Greek PM George Papandreou.

Mr Moghadam also revealed that the IMF had viewed favourably an Irish proposal that would have seen major private holders of Irish bonds take part in the bailout of the Irish banking system (bail-in). However this was also opposed by the ECB. According to Moghadam the austerity measures would have been considerably lighter had this option been taken.

Regarding Ireland and Portugal he also stated that the IMF had suggested solutions but these were not supported by majorities. The solutions which eventually were chosen, Moghadam said, were not considered optimal by the IMF.