IMF Vs. European Commission: Duel Over Financial Crisis

The European Commission says it disagrees with the International Monetary Fund's conclusion that mistakes were made in the handling of Greece's financial crisis. In a report issued Wednesday, the IMF acknowledged it had underestimated the damage done by austerity. The European Commission responded by saying the IMF is ignoring the interconnected nature of euro-area member states.

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Earlier this week, the International Monetary Fund came out with a scathing report about the way the Greek debt crisis was handled. It says European officials took too long to restructure Greece's debt because they were too concerned about protecting investors. Today, as NPR's Jim Zarroli reports, European officials hit back.

JIM ZARROLI, BYLINE: When the Greek crisis exploded three years ago, the IMF was one of three major multinational agencies that step forward to address it. The others were the European Union and the European Central Bank.

The report released by the IMF this week says their response to the crisis resulted in some notable failures. And that laid a good part of the blame on European officials. Simon Johnson is a professor of finance at MIT.

SIMON JOHNSON: That's the interesting piece here, is the IMF is being much tougher on the powerful countries in Europe, on the eurozone, than they ordinarily are in public.

ZARROLI: When the crisis occurred, the report says, Europe should have restructured Greece's debts more quickly, but it didn't want private bond holders to suffer big losses and it didn't fully appreciate the magnitude of Greece's troubles. The delays created big doubts about whether Europe really wanted to help Greece, and further undermine the market's confidence in the country.

Today, EU spokesman Simon O'Connor responded to the criticism. He said forcing investors to take big losses early on would have spread havoc throughout the financial system.

SIMON O'CONNOR: Restructuring at that stage in the program would have had, we believe, devastating consequences, not only for the euro area but also for Greece itself.

ZARROLI: The IMF report also said that Europe waited too long to make the kinds of structural reforms needed to get its economy back on track. It said the EU Commission in particular had no experience with crisis management. Today, European officials said they had done the best they could to contain an almost unprecedented crisis. The head of the ECB, Mario Draghi, said their efforts had stabilized the financial system and contained the crisis in Greece.

MARIO DRAGHI: Really, we have to acknowledge the progress that this country has achieved. And if we look at a few years ago, it would have been unthinkable.

ZARROLI: But Simon Johnson says the IMF report underscores the huge challenges that Europe still faces, especially in its banking system, challenges it hasn't really addressed.

JOHNSON: It should shake the Europeans up and make them rethink how they're approaching the continuing problems in other parts of Europe. Unfortunately, today's reaction suggests that the Europeans are still very deeply in denial.

ZARROLI: Meanwhile, Greece remains mired in what can only be called a depression. Its unemployment rate is 25 percent, and its economy has shrunk drastically since 2009. And it's still not clear whether Greece will be able to pay back all its debts. Jim Zarroli, NPR News, New York.

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