July 6, 2016
I welcome the report of the Independent Evaluation Office (IEO) on the Euro Area crisis programs. Their work provides an independent and in-depth account, which I have no doubt will make an important contribution to understanding the Fund’s approach to the crisis. As I have emphasized repeatedly, the IEO plays a vital role in enhancing the learning culture within the Fund, strengthening the Fund’s external credibility, and supporting the Executive Board’s institutional governance and oversight responsibilities.
Overall, the conclusion I draw is that the Fund’s involvement in the Euro Area crisis programs has been a qualified success. The crisis in the Euro Area was unprecedented. Coming against the backdrop of the global financial crisis, the risks of broader contagion were high. Key challenges included the abrupt loss of market access; the need for orderly adjustments in countries with deep imbalances and no recourse to exchange rate policies; and the absence of Euro Area firewalls. In the face of this unprecedented systemic challenge, Fund-supported programs succeeded in buying time to build firewalls, preventing the crisis from spreading, and restoring growth and market access in three out of four cases (Ireland, Portugal, Cyprus). Greece, however, was unique: while initial economic targets proved overly ambitious, the program was beset by recurrent political crises, pushback from vested interests, and severe implementation problems that led to a much deeper-than-expected output contraction. On the other hand, Greece undertook enormous adjustment with unprecedented assistance from its international partners. This enabled Greece to remain a member of the Euro Area—a key goal for Greece and the Euro Area members.
The IEO’s report offers many useful suggestions for the way forward. The Fund has also continually evaluated its own performance during the course of the 2010/11 programs and has taken action to incorporate lessons learned. That work will continue, and will benefit from the IEO’s evaluation.