Assessing the troika
In 2010 euro area member states, when faced with the likelihood that Greece would default on its sovereign debt, responded with an improvised solution. A trio of international lenders (European Commission, European Central Bank, and the International Monetary Fund) – the troika – agreed to provide a bailout, but attached onerous terms and conditions to the loans that they provided. The financial rescue averted what most had then feared, namely that a default by Greece could destabilise the weaker euro zone economies, and threaten the euro’s very survival. Nevertheless a sovereign debt crisis in Greece was later replicated in three other member states, with Ireland, Portugal and Cyprus each in turn requiring a financial rescue programme.
The European Parliament’s economic and monetary affairs committee this week adopted a report in which it has closely examined how the troika handled the four national bailout programmes. The committee was highly critical of aspects of the performance of the international lenders. Indeed, within the troika itself, strong disagreements also surfaced about the debt management policies adopted. The IMF was critical of the reluctance of its EU partners to restructure Greece’s debt in the first bailout in 2010. Likewise, during Ireland’s bailout programme, where the IMF favoured a bail-in of senior bondholders, this too proved unacceptable to the European members of the troika. Ironically, the policy that the European authorities were not then prepared to entertain – a bail-in of senior bondholders – they are now willing to accept in future.
What the economic affairs committee has sought to do in its report is to highlight the mistakes that it claims the troika has made, and to make recommendations on how crisis management in the EU can be improved, which include some proposals for institutional reform. That said, the troika faced a formidable challenge in managing the euro zone debt crisis, one that should not be underestimated. And while it has been strongly criticised in this report, the troika has nevertheless helped to restore credibility to the euro zone, and stability to its currency. But clearly, there are lessons to be learned from the troika’s management of affairs – not least the lack of democratic accountability to national parliaments for many of the decisions taken.
And questions will continue to be raised about whether the austerity measures negotiated between the troika and the programme countries – required to reduce their deficits and debt – were excessive, and whether they prolonged the euro zone’s recession and delayed its recovery.
The committee, in reviewing the troika’s performance, has opened up the issue to wider public debate before the European Parliament as a whole votes on its report in April.