The dog that did not bark: An ex-post evaluation of IMF surveillance of the Eurozone

by Jean Pisani-Ferry, André Sapir and Guntram Wolff

Vox
November 9, 2011

Europe’s surveillance of its highly-indebted countries has come under strong criticism. But these countries were also under the watch of another institution, the IMF. This column presents a report showing that the Fund is hardly without fault itself.

The Eurozone crisis has exposed deep governance deficiencies at two separate levels.

• One, highlighted by the recent chain of events, is crisis management and resolution.
• Two, no less important, concerns crisis prevention.

Although European surveillance mechanisms were in place before the crisis – and academics pointed out the key flaws far in advance – the EU surveillance mechanisms missed the signs. They failed to detect, let alone prevent, the build-up of vulnerabilities beyond sustainable levels, even in the area of public finances which was their main focus.

But crisis prevention in, and surveillance of, the Eurozone (EZ) was not only the responsibility of European authorities. As members of the International Monetary Fund, all individual EZ countries are also subject to regular bilateral IMF surveillance conducted under Article IV of the IMF’s Articles of Agreement. In addition, although not an IMF member, the currency union as such is subject to regular IMF surveillance.

In a recently published report undertaken for the IMF (Pisani-Ferry et al. 2011), we provide an evaluation of IMF surveillance of the Eurozone in the years before, and during the first phase of, the global financial crisis. Previous work, in particular the report of the Independent Evaluation Office, has already uncovered significant shortcomings of IMF surveillance (Bossone 2011). Our report adds to this debate by focusing on the Eurozone as a whole and on four countries severely hit by the recent economic and financial crisis, namely Greece, Ireland, Portugal, and Spain.

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