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IMF Sowing Seeds of the Crisis It Helped Plant - Opinion

The International Monetary Fund is clearly getting fed up with euro-zone policy makers as the continent’s “debt crisis” rages on.

Consider this report, from Reuters:

The stark message from IMF Managing Director Christine Lagarde, delivered to euro zone finance ministers who met in Luxembourg [on June 21], will increase pressure to forge a unified approach to tackling problems at struggling banks such as those in Spain.

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The stark message from IMF Managing Director Christine Lagarde, delivered to euro zone finance ministers who met in Luxembourg [on June 21], will increase pressure to forge a unified approach to tackling problems at struggling banks such as those in Spain.

"We are clearly seeing additional tension and acute stress applying to both banks and sovereigns in the euro area," Lagarde told a news conference after the meeting.

"A determined and forceful move towards complete European monetary union should be reaffirmed in order to restore faith," she said. "At the moment, the viability of the European monetary system is questioned."

No doubt the crisis has made it clear that the euro zone can no longer exist as a monetary union without the backing of a much fuller political and fiscal union behind it. But European officials cannot be blamed for feeling a tad fed up themselves with the IMF for hastening the crisis in the first place. A sample of past headlines alone tells the story:

  • “Spain Bank System Likely to Withstand Crisis: IMF” (Reuters, April 20, 2010)
  • “IMF Signals Spain, Portugal Must Step Up Budget Cuts” (Bloomberg News, May 11, 2010)
  • “IMF Head Says Greek Austerity Program Will Succeed” (Xinhua, May 17, 2010)
  • “IMF Calls for Radical Changes in Spain” (Bloomberg News, May 25, 2010)
  • “IMF Hails ‘Strong Start’ for Greek Austerity Measures” (BBC News, Aug 5, 2010)
  • “IMF Urges Ireland to Cut Jobless Pay, Minimum Wage” (Reuters, Nov 23, 2010)
  • “IMF Gives Positive Report Card to Greece” (CNN, Nov 23, 2010)

To wit, having identified “high debt ” as opposed to “no growth and the inability to devalue or pursue stimulus” as the problem of struggling euro-zone countries in the first place, the IMF’s insistence upon fiscal austerity in exchange for aid only worsened their underlying position.

It’s not as if the organization was calling for austerity measures while warning they would speed up the euro zone’s crisis; those measures, in fact, were billed as the solution to Europe’s woes. The IMF was hardly warning that the monetary union was fundamentally untenable; if anything, it played down such concerns.

To its credit, the organization has lately been shifting its focus from pro-austerity to pro-growth.

IMF official Poul Thomsen, who oversees the mission in Greece, told the Greek daily Katherimini in February that “we will have to slow down a little as far as fiscal adjustment is concerned.”

Or, as the Guardian put it: “IMF official admits austerity is harming Greece.”

That may be cold comfort for Athens, however — and for the broader global economy that is struggling not to buckle under the weight of Europe’s second recession in four years. Divisions within the euro zone, both economic and political, have now deepened considerably.

To the extent that forces peripheral countries to give up more of their sovereignty in exchange for aid — that is, to the extent it forces fuller fiscal and political union much more quickly than would otherwise have taken place — then perhaps the IMF will have achieved some measure of “success.” But it is hardly what officials originally had in mind. And if these divisions instead prevent Europe from moving toward closer integration, then the IMF, for all its growth exhortations now, will share the blame for the euro zone’s collapse.

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