The International Monetary Fund bent its own rules to bail out Greece back in 2010 in order to prevent much more serious damage to the eurozone and world economy.
In a detailed report on its handling of Greece's first 110 billion euro bailout, the IMF said assumptions about growth were too optimistic, private investors should have suffered a "haircut" much earlier, and the rescue failed to meet one of four criteria -- a high probability of Greece having a sustainable debt burden in the medium term.
Looking back, the IMF said the biggest rescue in the fund's history might also have failed to meet two of the other criteria -- a good chance of regaining access to capital markets, and a reasonably strong prospect of success taking into account Greece's capacity to reform.
The IMF provided 30 billion euros as part of the rescue led by the Troika -- the European Commission, European Central Bank and IMF -- heading off the threat of a disorderly default and containing contagion within the eurozone.
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"Moving ahead with the Greek program gave the euro area time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy," it said in the report. "The decision required the [IMF] to depart from its established rules on exceptional access [to funds] ... The euro partners had ruled out debt restructuring and were unwilling to provide additional financing support."
The first and subsequent bailouts have been accompanied by ferocious austerity measures aimed at slashing Greece's budget deficit so it can begin to bring down debt -- seen hitting 175% of GDP this year -- and return to international bond markets as early as next year.
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But it has paid a huge price for the international support. The country is in its sixth year of recession and nearly 6 out of 10 young people are without work.
"The recession has been deep with exceptionally high unemployment. The [2010] program did not restore growth and regain market access as it set out to do," the IMF said.
Still, given the risks of inaction and the climate of fear in global markets three years ago, the IMF said it was justified in signing up to the rescue.
"If we were in the same situation, with the same information at that time, we would probably do the same again," the IMF's mission chief for Greece, Poul Thomsen, told reporters late Wednesday.
The failure of the first rescue program forced the IMF and eurozone leaders to agree a second bailout in 2012, which forced huge losses on private-sector holders of Greek government debt -- including banks in Cyprus, which in turn was bailed out this year.
The IMF was critical of European Union leaders for failing to back a restructuring of Greek debt sooner, and said speculation by some European policymakers about a possible Greek exit from the eurozone might have also contributed to the deeper-than-expected recession.
The European Commission said it "fundamentally disagreed" with the IMF report on the need for earlier debt restructuring, arguing it would have caused systemic contagion in the eurozone and undermined the entire rescue effort.
"The point is that the IMF at that time, together with the ECB and eurozone member states... did not push for this and signed up for the approach that was taken," a Commission spokesman said.
