Surveillance with teeth - but too little bite

• Author: Andersen, Benny
• Pages: 22-25

22 | D i s c u s s i o n P a p e r S e r i e s | J u n e 2 0 2 0

This chapter evaluates the effectiveness of surveillance in Greece, focusing on the years leading

to euro area membership in 2001 and until the 2010 stand-by arrangement approval, mainly

using IMF documents, but also European Commission, ECB, and OECD surveillance reports,

together with the work of outside analysts.

I    G       

a number of weaknesses, failing to address with perseverance, vigour, and traction

accumulating macroeconomic imbalances and structural weaknesses that morphed into a full-

blown capital account crisis when financing sources evaporated.

Insufficient enforcement of EU economic policy rules and thereby a weakened implied discipline

also played an important role in the run-up to the crisis. Many market players believed EU

    A E-is-   

an advanced country bias e ncouraging the idea that such countries were immune to a crisis.

Europe would be expected to be able to handle its own problems, including regional weaknesses

and over-exposed banking systems (Boorman, 2016).

To be fair, Greece was not the only case where the international organisations failed to warn

about crisis causes and triggers. During the 2000s, policymakers worldwide were lulled into

complacency, neglecting an accumulation of underlying flaws that rendered the global financial

system vulnerable. An IMF I E O       IMF

performance during the crisis run-up, tried to establish why the IMF failed to presage the

escalating risks, concluding that detection abilities were hindered in part by a uniform mindset

that regarded a financial crisis in advanced economies as implausible. Group thinking and an

organisational silo mentality offered little incentive to contrarian views (IMF, 2011A). Another

evaluation noted a common IMF surveillance feature over the years was a tendency to side with

       T F      

              

(Dhar and Takagi, 2016). This second paper offered ex amples of frank, candid-language

assessments in internal papers that did not reach the attention of decision-makers. IMF staff

could have considered delivering these messages in private, but experience shows such

warnings only work when made public (Wolf, 2011).

IMF surveillance of Greece and other EU smaller countries often reflected the view  also

prevalent in capitals  that the IMF could add little value to already-available, comprehensive

EU and OECD surveillance. Complex arrangements and processes governing IMF euro area

surveillance probably resulted in work deficient in depth, focus, and consistency, especially for

smaller euro area members like Greece. This could be because IMF surveillance divided euro

area members into two parts; one addressed common policies with missions to the European

Commission and the ECB, the other addressed national policies. Within this process, possible

spillovers and overall consistency dropped out of sight (Pisani-Ferry, Sapir, and Wolff, 2011).

The IMF official line before the January 1999 euro launch emphasised common currency

advantages and only vaguely addressed concerns expressed in prominent academic literature,

such as the incomplete institutional arrangement, including the lack of a common fiscal policy

authority, and unfulfilled conditions for an optimal currency area. The IMF 1997 World Economic

O            

rules and the necessary scope for the exe       

In 1999, several IMF Executive Board Members discussing an external evaluation of IMF

              

to these countries a E   T   E C ECB

  OECD        D   

        IMF  E  

materialised in the 2000s when missions shrank, changed composition frequently, and reduced