We all know that the Greece saga was more than just a Greek saga as the whole ethos of the European project was under threat. WSJ has gotten hold of documents from various IMF directors in their May meeting in 2010. It doesn’t make for good reading and shows the level of concern the IMF had at the time.

  • Swiss director: Had considerable doubts about feasibility of program and why debt restructuring and private sector involvement had not been considered
  • Brazil: Program risks substituting private for official funding, may not be seen as a rescue of Greece but as a bail out of Greece’s private debt holders, mainly European financial institutions. Our decision to go along with this problematic and risk-laden program should not be taken to mean that we will support it in the future.
  • Argentina: It is very likely that Greece might end up worse off after implementing this program.
  • India: The scale of the fiscal reduction without any monetary policy offset is unprecedented…(It) is a mammoth burden that the economy could hardly bear. Even if, arguably, the program is successfully implemented, it could trigger a deflationary spiral of falling prices, falling employment, and falling fiscal revenues that could eventually undermine the program itself
  • China: The risks to the program are significant…The growth projection appears optimistic

The directors comments show that they were concerned that debt restructuring was not taking place for the first bailout and that their warnings that the program was not enough to limit the risk of further problems down the line. We all know what happened after when Greece did in fact need a second bailout where restructuring was first and foremost.

This is just one side of the story and it would be interesting to see the EU’s/ECB’s reaction to the concerns raised by the IMF. I would think that the threat of Europe collapsing, if something wasn’t done straight away, would have overridden the IMF fears leading them to join the program from day one.

You can read the full WSJ story here (it’s not gated)