10 Jun 2013
Amidst recent allegations, is it time for the Troika to dissolve?
FXstreet.com (New York) - The tenuous relationship between the triumvirate of the European Commission, International Monetary Fund and European Central Bank was assembled in earnest in March 2010 after Greece's public debt and deficit exploded and it was about to lose back access to market funding.
Greek crisis at heart of the tension
However, over three years later and after last week's IMF "mea culpa" report about the acute failures of the Greek program ruptured the cohesiveness, the trio clashed over whether Greece should restructure its debt, forcing investors to take losses, and whether Ireland should make bondholders in its shattered banks share the cost of a financial rescue.
IMF in focus amidst flawed program
As such, the publicized airing of such differences has certainty raised the question of whether the Troika has not only reached its zenith, but whether it should be phased out entirely or restructured. Seemingly all sides are feeling bitter, however outright divorce or disbandment seems unlikely. The IMF says it lowered its standards to support a flawed program for Greece; the European Commission says it "fundamentally disagrees" with the IMF's view that Greek debt should have been written off sooner; and the ECB says the IMF is applying misleading hindsight.
Indeed, perhaps the most damaging suspicion raised by the IMF study of the Greek program was that the Troika made over-optimistic growth forecasts and massaged the debt numbers because euro zone political leaders exerted undue influence on the process. Encapsulated in the complexity 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.
"The Troika is a unique set-up which has institutionalized political influence in IMF decision-taking," noted Ousmene Mandeng, a former IMF official. "Decisions were perceived to be taken in Berlin and Brussels rather than by the IMF board. "The IMF should never again be a junior partner in this way.
Greek crisis at heart of the tension
However, over three years later and after last week's IMF "mea culpa" report about the acute failures of the Greek program ruptured the cohesiveness, the trio clashed over whether Greece should restructure its debt, forcing investors to take losses, and whether Ireland should make bondholders in its shattered banks share the cost of a financial rescue.
IMF in focus amidst flawed program
As such, the publicized airing of such differences has certainty raised the question of whether the Troika has not only reached its zenith, but whether it should be phased out entirely or restructured. Seemingly all sides are feeling bitter, however outright divorce or disbandment seems unlikely. The IMF says it lowered its standards to support a flawed program for Greece; the European Commission says it "fundamentally disagrees" with the IMF's view that Greek debt should have been written off sooner; and the ECB says the IMF is applying misleading hindsight.
Indeed, perhaps the most damaging suspicion raised by the IMF study of the Greek program was that the Troika made over-optimistic growth forecasts and massaged the debt numbers because euro zone political leaders exerted undue influence on the process. Encapsulated in the complexity 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.
"The Troika is a unique set-up which has institutionalized political influence in IMF decision-taking," noted Ousmene Mandeng, a former IMF official. "Decisions were perceived to be taken in Berlin and Brussels rather than by the IMF board. "The IMF should never again be a junior partner in this way.