We DID make Greece's debt crisis worse with brutal cuts and tax hikes, IMF admits as Greeks say they 'can't forgive' officials for making recession worse

IMF report admits fund forced austerity measures on Greece too quickly

Fund also failed to restructure country's debts at the start of crisis

Greek politicians welcome IMF's confession and call for change of course

A war of words broke out between the International Monetary Fund and the EU yesterday over its  bungled bailout of Greece.
The IMF admitted to ‘notable failures’ in the handling of the Greek crisis and accused European officials of being more concerned with saving the euro than  rescuing the debt-ridden country.
The Fund, headed by Christine Lagarde, said it was forced to break its own rules for providing financial assistance to bankrupt countries because EU leaders refused to take action to solve the crisis.

Blunder: The IMF has admitted mishandling the Greek debt crisis, leading to violent anti-austerity protests like this demonstration in Athens last November

The IMF report, drawn up by staff at the watchdog’s headquarters in Washington, triggered a furious response in Brussels where the European Commission said it was ‘plainly wrong and unfounded’.

A spokesman for Olli Rehn, European commissioner for economic affairs, said: ‘We  fundamentally disagree.’

Britain was forced to find more than  £1billion to prop up Greece, and in turn the euro, through the UK’s membership of the IMF. Matthew Sinclair, of the TaxPayers’ Alliance, said: ‘Taxpayers were roped into bailing out Greece via the back door. Now it turns out they botched even that. The eurozone built itself on a debt bubble and it’s scandalous that hard-pressed families are shouldering even a penny of that bill.’

The IMF and the EU granted Greece a £93billion bailout in May 2010.

The Fund now admits there were serious mistakes in the way it and EU officials handled the bailout.

Street battles: Protesters and police have repeatedly clashed as the country's economy has shrunk

The report said the catalogue of errors – including harsh austerity measures on Greece – plunged the country deeper into crisis.

Greece is in its sixth consecutive year of recession with unemployment at 27 per cent and youth unemployment at 62.5 per cent – meaning more than six in ten young Greeks who want a job cannot find one.
The IMF said the ‘dramatic contraction’ in the Greek economy was driven by the refusal of European officials to consider writing off the country’s debts as early as 2010.

The debt burden was eventually restructured last year – meaning investors were paid less than what they were owed as the burden on Greece was partially lifted.

‘Not tackling the public debt problem decisively at the outset or early in the programme created uncertainty about the euro area’s capacity to resolve the crisis and likely aggravated the contraction in output,’ said the IMF report.

Fury: Many Greeks blame outsiders such as German chancellor Angela Merkel for the deep recession

‘An upfront debt restructuring would have been better for Greece although this was not acceptable to the euro partners.’

The IMF said the rescue packages were nothing more than a ‘holding operation’ to give the eurozone ‘time to build a firewall to protect other vulnerable members’ – in other words, an attempt to save the euro whatever it meant for Greece.

‘Market confidence was not restored, the banking system lost 30 per cent of its deposits, and the economy encountered a much deeper than expected recession with exceptionally high unemployment,’ said the IMF.

The EU insisted that writing off Greek debt as suggested by the IMF would have led to ‘devastating consequences’ as investors fretted about losses in other eurozone countries.

A spokesman said: ‘With hindsight we can go back and say in an ideal world what should have been done differently.

The circumstances were what they were. I think the Commission did its best in an unprecedented situation.’