The IMF on their Greek bailout: We’ve made a huge mistake
posted at 7:21 pm on June 5, 2013 by Erika Johnsen
More bad news: Germany’s economy, responsible for almost a third of the eurozone’s collective output, has been one of the few relative — and I do mean relative — bright spots in the black hole of contraction that has been the eurozone’s economic performance for six straight quarters. They managed to just barely get their first-quarter economic growth above zero, and earlier this spring the IMF projected an upcoming 0.6 percent growth rate — still a heartbreaking stagnation rate, but at least it was something… except that the IMF just readjusted their estimate once again. Downward.
The IMF said falling business investment and the eurozone’s ongoing recession, which have hampered German growth, meant the economy would grow by just 0.3pc this year, compared with an April estimate of 0.6pc.
“The uncertainty, mainly surrounding prospects for the euro area and the ongoing recession in the region, have led to declining German exports to the region as well as a sharp pull back in business investment,” the IMF said in a report on Monday.
The Fund also warned of further risks to Germany’s growth prospects. “Should the alleviation of uncertainty and an expected gradual recovery in the rest of the euro area fail to materialise, growth can be expected to remain below its potential for longer, leading to a widening of the output gap which would eventually result in slack in the labour market,” it said.
From whence this ‘expected’ gradual recovery in the rest of the eurozone is supposed to materialize, I have no idea — especially since the IMF also just admitted that they have probably been mishandling the first domino that knocked the whole thing down from the very beginning. The WSJ reports:
BRUSSELS—The International Monetary Fund has admitted to major missteps over the past three years in its handling of the bailout of Greece, the first spark in a debt crisis that spread across Europe.
In an internal document marked “strictly confidential,” the IMF said it badly underestimated the damage that its prescriptions of austerity would do to Greece’s economy, which has been mired in recession for the last six years.
The IMF conceded that it bent its own rules to make Greece’s burgeoning debt seem sustainable and that, in retrospect, the country failed on three of its four criteria to qualify for aid. …
The IMF report said that it had been too optimistic in 2010 about the Greek government’s prospects for a return to market financing and its political ability to implement the conditions of its rescue program.
Worse and worse.