IMF influence in Europe weakening?

23 January 2014

In November, Ireland confirmed that it would be completing its bailout programme without requesting a new loan from the IMF or the Troika group of lenders, comprising the Fund, the European Central Bank and the European Commission. This means that it will seek to repay the loans it has received from the Fund and European institutions without any further backstop, though it will remain subject to monitoring by both the IMF and the EU’s rescue fund, the European Stability Mechanism (ESM), on a six-monthly basis rather than every three months as occurred under Troika loan reviews. Reports in October suggested that the government had explored the possibility a precautionary lending facility from the IMF alone but had been unwilling to accept a “swathe of tough conditions” that were required of it.

Though the Irish government has described the economic programme and subsequent exit as a success, Ashoka Mody, the 2010 IMF mission chief to Ireland responsible for designing the initial bailout package, told the Irish Times in December that the “aggressive, single-minded focus on austerity by way of sharp tax increases and deep spending cuts at the expense of measures that might encourage economic growth … was analytically, practically and institutionally wrong”. He disputed the pro-austerity argument that financial markets required “cutting and taxing”, in particular considering the failure to require bondholders to accept a loss as a key error.

IMF getting out of Europe?

The IMF’s role in the Troika is changing quickly as the internal eurozone institutional architecture is developing to make the IMF’s role less crucial. However, Nuno Teles, a Portuguese economist, argued in a December article that “IMF assistance will always be sought” by the new European institutions when designing their own bailout conditions.

The European parliament’s economic and monetary affairs committee (ECON) is currently conducting a probe into the Troika, focusing on the “non-transparent” manner in which decisions and agreements were reached between the Troika and borrowers. Sven Geigold, a German Green party MEP and committee member, said in October that the assumptions of the Troika “proved to be wrong in all bail-out countries”, referring to higher unemployment, faster declines in economic growth while public debt rose faster than the Troika expected. The inquiry will produce a draft report in January.

A European activist network launched a  new Troika Watch newsletter in December 2013 to “help connect struggles … and … strengthen resistance against austerity” arguing that “the current situation is characterized by a Troika that still pushes for even more austerity and by governments that are doing window-dressing by claiming to see a positive development for the times ahead, which will never become reality if the current policy is continued.