As Greece descended into a financial maelstrom in the spring of 2010, a small group of staffers at the International Monetary Fund (IMF) held top-secret talks with officials from the German and French finance ministries to discuss the idea of restructuring Greece’s debt. Many independent analysts believed a restructuring was inevitable because the country’s debt burden appeared unsustainable. But instead, the “Troika” — the tripartite group of lenders that included the IMF, the European Commission and European Central Bank — attempted to resolve the crisis by giving Athens bailout loans of unprecedented magnitude, piling debt atop debt. The idea considered in those secret talks would come to fruition only much later, in March 2012, when Greece received the largest debt relief in history. In the meantime, the rescue effort would go terribly awry, with consequences that continue to reverberate today as the euro area struggles with weak growth and a rekindled crisis in Greece. This paper tells the story of the first Greek rescue, focusing on the role played by the IMF, and based on interviews with dozens of key participants as well as both public and private IMF documents. A detailed look back at this drama elucidates significant concerns about the Fund’s governance and its management of future crises.
