EU rejects IMF criticism on handling Greek crisis

Thursday, June 6th, 2013 | Finance News

BERLIN (AP) — The European Commission on Thursday defended its handling of the Greek debt crisis, saying it "fundamentally disagrees" with criticism voiced by the International Monetary Fund.

The IMF a day earlier said there had been "notable failures" in the way itself, the Commission and others handled Greece's 240-billion-euro ($310 billion) bailout. It said the mistakes had worsened the country's economic plight — it is now in its sixth consecutive year of recession and unemployment has risen to 27 percent.

A spokesman for the EU Commission, the 27-nation bloc's executive arm, said restructuring Greece's debt before granting it a bailout — as now suggested in the official IMF report — could have led to "devastating consequences" given that the 17-country eurozone back then had no appropriate firewalls.

"We fundamentally disagree," Simon O'Connor told reporters in Brussels. "The report ignores the interconnected nature of the euro area member states. A private sector debt restructuring would have certainly risked systemic contagion," he added.

Greece has been locked out of international bond markets since early 2010, when investors became worried about its excessive public debt levels. Many feared the country would have to leave the group of 17 nations using the euro currency.

The debt burden was eventually restructured last year, once eurozone leaders felt confident that such a step wouldn't cause excessive turmoil in financial markets. Restructuring debt involves paying investors less than what they are owed. There were concerns that such a move could make investors worry about bond investments across the rest of the region.

The Commission also strongly rejected the IMF report's claim that not enough growth-enhancing structural reforms — such as making the labor market more flexible — were demanded from the Greek government in return for its bailout.

"This is plainly wrong and unfounded," insisted O'Connor, the spokesman for the EU's top economic official, Olli Rehn.

Greece had to push through deeply unpopular austerity measures including income cuts, tax increases and overhauls to its bloated public sector in return for the bailout loans.

The EU Commission together with the IMF and the European Central Bank forms the "troika" of creditors that manages the bailouts for Greece, Portugal, Ireland and Cyprus.

This week's public dispute over the Greek deal, however, highlighted how the three organizations are increasingly at odds over key issues. Several EU policymakers, for example, have recently hinted that the bloc should be able to handle future financial emergencies without the IMF's involvement.

The IMF itself in the report also stated there is a "need to find ways to streamline the troika process in the future."

O'Connor acknowledged that designing and implementing the bailout for Greece was "a learning process," but insisted that the troika acted unanimously and that its approach is now bearing fruit.

"Today the reform program is on track and there are growing signs of stabilization and increasing confidence in Greece," he said.

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