The International Monetary Fund acknowledges that it made "notable failures" on the first rescue package for Greece, setting overly optimistic expectations for the country's economy and underestimating the effects of the austerity measures it imposed. As such, the fund said in an unusually frank report released on Wednesday, it lowered its own standards on debt sustainability, setting lending levels too high for Greece while not pushing hard enough on Greek debt restructuring.
The IMF, together with the European Central Bank and the European Commision, make up the so-called Troika, which intervened in 2010 to keep the euro-zone country from defaulting on its debts and having to leave the common currency bloc. At the time, the IMF pledged some €30 billion ($39 billion) to Greece, out of a total bailout package of €110 billion. This was followed by a further pledge of €165 billion, plus €107 billion in private loan forebearance.
Some IMF board members and others criticized the fund for giving Greece so much money relative to the size of its economy and accused it of bending to appease its European members. The IMF, however, insisted the debt levels were sustainable as long as its economic projections were accurate. In retrospect, however, the IMF now says that it lowered its bar for Greece.
The rescue package kept the country afloat but it came in exchange for harsh austerity measures that have deepened the Greek recession, currently in its sixth year. Unemployment in the country is 27 percent. The central bank said this month that the country's economy is likely to contract by a further 4.6 percent in 2013, with unemployment set to reach 28 percent.
There were some significant successes, the IMF says. Greece has been able to stay in the euro zone and the spillover effect on the global economy was relatively contained. Yet the report on Wednesday also concludes that the IMF and its partners in the bailout significantly underestimated how much various austerity measures, such as spending cuts, layoffs and tax increases, would impact the Greek economy.
Greece shares part of the blame for the bailout's shortfalls, the report goes on to say. According to the IMF, the country has progressed too slowly with economic reforms.
'The Brink of a Humanitarian Crisis'
In Athens, the left-wing opposition party Syriza said that the country's conservative-led coalition government should respond to the IMF's admission with a drastic change in course.
"We should immediately abandon these harsh austerity policies that have brought the country to the brink of a humanitarian crisis. These policies are not working. ... The dogmatic insistence in pursuing these policies should end," Syriza spokesman Panos Skourletis told the AP news agency.
The IMF report also criticizes the cooperation of the other two Troika members, the European Commission and the ECB, citing problems with coordination and benchmarking.
Ultimately, the report concluded, the euro-zone countries lent money to Greece at a level that was too high. And that the country, mired in a deep recession, will have an extremely difficult time managing to pay back.