The International Monetary Fund has admitted "notable failures" in the Greek bailout, saying in a report Thursday that despite the steps Greece's recession and unemployment problem were more severe than anticipated.
The report said the program had succeeded in keeping Greece within the eurozone and mostly prevented the country's economic troubles from spilling over to the rest of the region. "However," it said:
"There were also notable failures. Market confidence was not restored, the banking system lost 30 percent of its deposits, and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment. Public debt remained too high and eventually had to be restructured, with collateral damage for bank balance sheets that were also weakened by the recession. Competitiveness improved somewhat on the back of falling wages, but structural reforms stalled and productivity gains proved elusive."
Indeed, as the BBC notes: "Greece's economic output (GDP) in 2012 was 17% lower than in 2009, compared with the IMF and EU's initial projection of a 5.5% decline. The original growth projections were not marked down until the fifth review in December 2011.
"The unemployment rate in 2012 was 25%, compared with the original programme projection of 15%."
Greece received more than 200 billion euros from the IMF and European Union. The bailout came in response to fears that the country would default on its debt obligations, a move that could imperil the whole of the eurozone.
In the case of Greece, the report said the IMF bent its own rules on exceptional access. The fund's rules say public debt must be sustainable in the medium term to justify exceptional access. But, "even with implementation of agreed policies, uncertainties were so significant that staff were unable to vouch that public debt was sustainable with high probability."
The news was met with glee in Athens. As the Guardian reports:
"The report confirms what Greek officials have long said: that the first bailout of uncompromising budget cuts and tax increases, the price of 110 bn euro in emergency funds in May 2010, was the wrong prescription for a country not only batting a monumental debt load but rampant tax evasion and a flourishing black economy.
"Under the weight of such measures — applied across the board and hitting the poorest hardest - the economy, they said, was always bound to dive into an economic death spiral. 'For too long they [troika officials] refused to accept that the programme was simply off-target by hiding behind our failure to implement structural reforms,' said one insider. 'Now that reforms are being applied they've had to accept the bitter truth.' "
Meanwhile, EU and IMF officials were in Athens this week to monitor Greece's austerity program.