The troika’s big mistake

The admission last month by the International Monetary Fund that it made major missteps in its handling of the Greek bailout program over the past three years naturally caused a furor but, at the same time, it left several key questions unanswered. One of the biggest mistakes made by officials at the Washington-based organization was that they failed to put pressure on the Greek government to implement the much-hyped structural reforms and an overhaul of the state sector.

Let’s go back to the closing months of 2011 for a moment. The government at the time had carried out the sweeping changes to the country’s social security system and imposed severe cuts on wages and pensions. Society was still relatively calm because recession and cuts had not yet pitted the people against the memorandum. The political class had not yet seen its credibility go up in smoke while voters still felt that their sacrifices may in fact pay off.

Those among us, however, who could see a little bit further down the road had seen that the socialist PASOK’s party old guard, together with the unionists and the core members of the administration, would seek to block any ambitious reform effort. Similarly, they would obstruct any campaign to reduce the state by scrapping useless organizations and redundant posts.

If the IMF had suspended the program at the time to put pressure on the administration of George Papandreou to liberalize closed professions and shape up the civil service, things today would be a lot different. Regrettably, Dominique Strauss-Kahn, who was chief of the IMF at the time, and other officials did not want to rock the boat. They were either afraid that doing so could be fatal for the Papandreou administration or because they were concerned about the stability of the other nations of the European south.

A lot could have been done back then, and at a much faster pace. Society still had greater room to maneuver and more patience. Meanwhile, the ruling party had a big parliamentary majority and the two-party system was very much alive. For his part, Papandreou would have had to face up to the grim reality and throw his weight behind one of the two factions of PASOK.

The troika chose to turn a blind eye and instead insist on bigger, horizontal cuts. The term reform has acquired negative connotations, Parliament is near boiling point and everything is much much harder.

At the end of the day, the troika was driven by political criteria when they should have adopted a colder, technocratic approach and vice versa.

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