The International Monetary Fund has admitted that it made mistakes in handling Greece’s first international bailout.
The IMF said it was too optimistic in its growth assumptions and said a debt restructuring should have been considered earlier.
Greece was granted a 110 billion euro ($145 billion) bailout by the IMF and EU in May 2010.
Another 130 billion euro rescue package was approved in February 2012.
Greece’s first bailout came amid fears the country would default on its debts and that it could spark debt contagion in the eurozone.
The IMF has now released a study looking at the handling of the programme.
It admitted that it bent its own rules on exceptional access for the programme to go ahead.
To justify exceptional access, one of the four criteria that must be met is that public debt is sustainable in the medium term.
But the IMF said: “Even with implementation of agreed policies, uncertainties were so significant that staff were unable to vouch that public debt was sustainable with high probability.”
But staff wanted to go ahead with exceptional access because of fears that any spillovers from Greece would threaten the rest of the eurozone and the global economy.
The IMF then amended the criterion to where debt was not sustainable with high probability, “a high risk of international spillover effects provided an alternative justification”.
The IMF described the programme, which ran from May 2010 to March 2012, as a “holding operation” that gave the euro area “time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy”.
It said it had notable successes such as achieving strong fiscal consolidation, Greece remaining in the eurozone and any spillovers that might have had a severe impact on the global economy were relatively well-contained.
But it also said there were notable failures, chiefly market confidence was not restored, the banking system lost 30% of its deposits and the Greek economy experienced a much deeper-than-expected recession.
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%.
The IMF added that in future Fund staff should be more skeptical about official data.
The Fund also criticized the delay in restructuring Greece’s massive debt load by forcing private holders of Greek bonds to take losses, which eventually took place in the first half of 2012.
“Not tackling the public debt problem decisively at the outset or early in the programme created uncertainty about the euro area’s capacity to resolve the crisis and likely aggravated the contraction in output,” the report said.
It said an upfront debt restructuring would have been better for Greece but this was “not acceptable to the euro partners”, some of whose banks held large amounts of Greek government debt.
The report also said there was no clear division of labor between the IMF, the EU and the European Central Bank, the so-called “troika”.
It said that while there were “occasional marked differences of view” within the troika, these were generally not on display to the authorities so did not risk slowing negotiations, and noted that “co-ordination seems to have been quite good under the circumstances”.