10 June 2013

Reuters: Euro bailout Troika nears end of road with patchy record

Last week's IMF "mea culpa" report about the failures of the Greek programme blew the lid off the fiction that the troika saw eye-to-eye on the rescue packages it designed and is enforcing in Greece, Ireland, Portugal and Cyprus.

The Europeans contend that in the acute market panic of 2010, before the eurozone had begun to built a financial firewall, letting Greece default or making it restructure its debt could have caused massive contagion to other countries and perhaps swept away the single European currency. "It would have been Europe's Lehman moment", EU Economic and Monetary Affairs Commissioner Olli Rehn said, referring to the 2008 collapse of US investment bank Lehman Brothers that sparked a global financial crisis. "I don't recall the IMF's managing director Dominique Strauss-Kahn proposing early debt restructuring, but I do recall that Christine Lagarde was opposed to it."

The most damaging suspicion raised by the IMF study of the Greek programme is that the Troika made over-optimistic growth forecasts and massaged the debt numbers because eurozone political leaders exerted undue influence on the process. Wrapped in the forensic jargon of financial analysis, the IMF experts say European leaders made Greece's economic crisis worse by delaying an inevitable debt write-off, buying time for their own banks to cut their losses at taxpayers' expense.

Some ECB stakeholders, notably in Germany, are worried about potential conflicts of interest if the central bank stays in the Troika while it is backstopping eurozone government debt at the same time with its OMT bond-buying programme and is soon to take charge of supervising banks that lend to troubled sovereigns. ECB executive board member Jörg Asmussen told the European Parliament that once the current crisis is over, the Troika should be replaced by the eurozone rescue fund and the European Commission.

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