Alessandro Leipold on Greek Crisis

In the middle of the Greek financial crisis, the Lisbon Council launches a new e-brief entitled Preventing Greek Tragedy from Becoming a Eurozone Disaster: Lessons from IMF Crisis Lending – and the Challenges Ahead. The author, Alessandro Leipold, economic adviser to the Lisbon Council and a former acting director of the European Department at the International Monetary Fund (IMF), explains how the Greek crisis could be managed much more effectively. In particular, he argues:

• The Greek assistance programme to date has been severely mishandled by European policymakers, with a meandering strategy and poor communication, threatening to undermine European unity itself. The time of muddling through must end.
• Assistance to Greece could usefully draw on the lessons provided by the IMF’s multi-year experience in crisis lending
• First and foremost of these is rapidity of response. Approaching official support as an ultima ratio is misguided. Any further procedural delays should be forestalled by swift provision of bridge financing
• Conditionality needs to cover all macro-relevant aspects, including importantly the financial sector, as strains on Greek banks come to the fore. And private sector involvement has to be pursued to avoid that official financing trigger a “rush for the exits.”
• Assistance should be credible, i.e., quantified for three years. Any hedging on the financing for 2011-2012 would sink the whole exercise
• The cacophony coming out of European capitals has been destructive of market confidence. Verbal undermining from ministers playing to domestic audiences must end, and Europe must find a common voice in the crisis, if its actions are to be seen and held to be credible
• The EU and the IMF can work together – provided a misplaced sense of amour-propre is set aside – and have done so to good effect in the current crisis, notably in Hungary and Latvia

Download Alessandro Leipold's e-brief