Christine Lagarde, head of the IMF (International Monetary Fund), said in an interview Tuesday (07 May 2013) that the reform her organization had recommended for Greece had consequences greater than had been estimated. However, she still defended the actions recommended which has resulted in a depression for Greece with GDP down 14% from 2009 through the end of 2012. The unemployment rate for Greece, which was under 10% for most of 2009 has risen to well above 25%, even as population growth has essentially stopped as younger workers who can are leaving the country to seek employment elsewhere.
The exact statement by Lagarde admitting that the IMF did not know what it was doing at the end of 2009 and early 2010 when it recommended the severe austrity program for Greece (From AP):
“What we underestimated is the consequences, that’s clear.”
She qualified the admission , as indicated in the following from the AP article:
Lagarde said that the IMF doesn’t believe “that austerity and growth are mutually exclusive,” but she said the fund doesn’t believe austerity policies alone can lead to growth.
She praised a recent European Commission decision to allow France and the Netherlands more time to get their budget deficits down.
“The fact that they are allowing more time is a good move,” she said.
Lagarde also criticized the U.S. fiscal actions as a “too abrupt” debt reduction action. She said the sequestor would add to a reduced growth rate that was already under stress from tax hikes and other spending cuts. The most recent IMF estimate for the GDP growth for the U.S. in 2013 is 2%. Without the “austerity actions” the estimate was that growth would have have been 3.75%.
Below are two data charts that show GDP and employment before and after the implementation of the Greek “rescue” in early 2010.