With the sad exception of Greece, the eurozone financial crisis has fallen down the list of problems that European leaders have to confront, with migration and Brexit rising to the top. The International Monetary Fund, which played a leading role in trying to resolve the crisis, has had to turn its attention to more familiar issues of balance of payments problems in emerging market commodity producers.
Yet the report yesterday by the IMF’s watchdog, the Independent Evaluation Office, on the IMF’s role in the crisis deserves attention. The study does not find conclusive evidence of political interference in the fund’s processes. It does, however, provide ammunition for the view that Europe’s outsized influence over the governance of the IMF must continue to decline if the institution is to retain credibility.
Several of the conclusions of the report have been accepted already by IMF management, headed by Christine Lagarde, and its executive board, which represents its shareholder countries. Taking their lead from European officials, the IMF failed to grasp that balance of payments problems could occur within a currency union. It also ignored the lesson it had supposedly drawn from earlier crises: that a prompt and orderly writedown of private and public debt is often necessary to restore confidence.