�ԹϺ�����

The recent controversy between the IMF and the European Commission on the question of when a debt restructuring should have been done raises the broader question about the future collaboration between the IMF and the European institutions in the euro area. The IMF has just issued a paper arguing that in Greece, the debt restructuring should have happened  earlier. The European Commission responded on June 6 with a different assessment contradicting the IMF.  While I tend to side with the IMF on the matter, the controversy raises the question why such different assessments are reached and what it means for further collaboration.

So why do the different institutions come to such a different assessment? After all, they both have excellent economists that are using the same data and base their assessment on similar technical methods. The difference is due to the different institutional and political objectives. The IMF has been increasingly critical due to its large exposure to the euro area. 56% of IMF lending now goes to the euro area. While IMF lending enjoys seniority status, important IMF shareholders in particular from emerging economies have become increasingly concerned about the supposedly different treatment of Europe compared to the previous crises in Asia and Latin America. And indeed, the IMF had to adapt its own working rules in order to provide loans to Greece, where already on it had put debt sustainability in serious doubt.

The European institutions instead follow different rules and a different logic. Being responsible for an incomplete and still fragile monetary union, they tended to be more risk averse. They were ready to do so despite the doubtful debt sustainability. Yet, at the same time, major European creditor countries were not ready to agree on an outright transfer or official sector involvement. The result was a fragile approach that was based on overly optimistic assumptions. These overly optimistic assumptions proved completely wrong. The Troika had predicted a small recession in Greece with GDP falling during 2010-13 by only 3.5%. Instead, the actual contraction amounted to 21%. True, some of the reasons for the collapse of GDP could not be predicted. Who would have thought that the entire euro area would be in crisis and that an exit of Greece from the euro was a seriously debated option. Yet other factors were clearly too optimistically assessed. For example, it was hoped that Greece would quickly be able to adjust its production structure and be able to export much more so as to compensate for the drop in domestic demand. Projected privatization receipts were increased to unrealistic numbers when the programme derailed.

How should the Troika evolve to prevent similar failures from happening? In a recent report, we have argued that the IMF should be less financially involved. As a catalytic lender, it would provide only 10% of the overall financing of the programme. This would allow it to fully adhere to its own standards and in case of disagreement drop out of the Troika programme. At the same time, a decision by the IMF not to participate in the programme would provide a strong signal that indeed the foundations of the programme may be less robust than desirable.

On the European side, a programme may still be considered desirable, also from the point of view of financial, political and social stability. To render a programme more easily feasible and more operational, we would consider it useful that the ESM gradually evolves towards a European Monetary Fund with a clearly defined mandate and lower voting thresholds. The European Commission would thereby be relieved of its currently difficult dual role of being a community institution responsible for the treaty while at the same time implementing tough programmes as an agent of the Eurogroup. Finally, the ECB should remain part of the Troika but play a less decisive role in the day to day negotiations. Such a reformed Troika would be better for Europe and also for the IMF.

This comment draws on a joint report with Jean Pisani-Ferry and André Sapir.