The first programme for Greece 2010-2012 - a costly holding operation

• Author: Andersen, Benny
• Pages: 27-30

T H E C R I S I S I N G R E E C E : M I S S T E P S A N D M I S C A L C U L A T I O N S | 27

The stand-by arrangement approved in May 2010 was the first IMF programme ever for a euro

area member, with the largest amount compared to the quota for any IMF member in its history

at 3,212%. It was the first undertaken within the Troika model that brought together the IMF,

the European Commission, and the ECB, whereby financial assistance agreed by euro area

       W    IMF     

stand-    E        

pooled by the European Commission under the Greek Loan Facility (GLF).

The programme has been subject to various evaluations, notably the IMF ex post programme

 IMF   IMF I E O    

in Greece, Ireland, and Portugal (IMF, 2016), and various analyses from academics. This chapter

also benefits from the views of Greek officials who contributed to the ex post evaluation (IMF,

2013 Appendix 1), numerous background papers, and the perspectives of commentators.

General agreement suggests the programme was a success in some areas although the list of

programme problems is long. Accomplishments include avoiding a disorderly default, with

Greece remaining in the euro area as it wished. The country managed to achieve a strong fiscal

consolidation in numbers and put its pension system on a more viable footing. The programme

also helped contain negative spillovers or promoted necessary policy adjustments in other euro

area countries, known as positive contagion. And the arrangement bought the time needed to

build stronger regional and global firewalls, take steps towards a banking union, ensure better

euro area risk-sharing arrangements, and strengthen fiscal rules and reduce vulnerabilities.

The time allowed for a broader strengthening of EU economic governance through monitoring,

     “ P    EU    

SGP and intensify macroeconomic surveillance, that entered into force in December 2011. Also,

25 of the then 27 EU Member States signed a more ambitious Fiscal Compact in January 2013.

However, the programme did not deliver the desired improvement and was off track by early

2011. Attempts to wrench it back on course that included extra fiscal measures from 2011 failed.

IMF D P T  W   -hanging fruits, quality of measures began

to deteriorate. We [the IMF] became increasingly concerned that the adjustment  while

extraordinary  was being achieved in a growth     T

2019). Little political will existed to reform the overgenerous pension system and to broaden

the exceptionally low tax base. The programme was cancelled in March 2012.

This delay to structural reforms meant neither market confidence nor the investment climate

improved enough to reach a sustainable position. Peculiarities in the Greek export structure

           G   

 A          W G  

achieved major improvements in cost competitiveness since the start of the Greek adjustment

programme, structural reforms must also address non-cost competitiveness factors such as the

     G    B M

and Ungerer, 2014).

In 2012, real GDP was languishing m ore than 10% below the programme baseline, with the

unemployment rate about        G 

had improved a little but the structural reforms needed to enhance growth were scarce and

   T     G     

of their deposits. Private sector involvement also proved elusive, despite pushes early on from

the IMF, until banks and other investors eventually contributed by writing down some of the

debt holdings in early 2012 within a private sector involvement programme.

Key lessons from the first programme, and explanations on what went wrong, include the

following: