Christine Lagarde IMF/Flickr

The IMF’s Euro Crisis

Over the last few decades, the IMF has learned six important lessons about how to manage government debt crises. In its response to the crisis in Greece, however, each of these lessons has been ignored.

OXFORD – Over the last few decades, the International Monetary Fund has learned six important lessons about how to manage government debt crises. In its response to the crisis in Greece, however, each of these lessons has been ignored.

The Fund’s participation in the effort to rescue the eurozone may have raised its profile and gained it favor in Europe. But its failure, and the failure of its European shareholders, to adhere to its own best practices may eventually prove to have been a fatal misstep.

One key lesson ignored in the Greece debacle is that when a bailout becomes necessary, it should be done once and definitively. The IMF learned this in 1997, when an inadequate bailout of South Korea forced a second round of negotiations. In Greece, the problem is even worse, as the €86 billion ($94 billion) plan now under discussion follows a €110 billion bailout in 2010 and a €130 billion rescue in 2012.

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