in 100 words, summarize this please. also, write 3 points the article is making and explain each point in 100 words.

Only much later, in March 2012, would the idea discussed in those talks come to fruition, when Greece was granted At 2:00 a.m. on April 24, 2010, a plane bearing George the largest debt relief that any country has ever received. Papaconstantinou, Greece's finance minister, landed at First, the Troika would attempt to resolve the Greek Andrews Air Force Base outside Washington, DC, leaving crisis by giving Athens bailout loans of unprecedented little time before an important 7:00 a.m. breakfast meeting magnitude - an effort that would go terribly awry. at the IMF. Papaconstaninou's trip came amid urgent negotiations in Athens for an international bailout - the This is the story of the first Greek rescue. Its consequences first ever for a country in the euro zone - and although reverberate today as the euro area struggles with weak the deadline for completing the talks was just days away, growth and a rekindled crisis in Greece, where a halfhe wanted to make sure he had a firm understanding decade of economic misery led to the electoral victory of with Greece's rescuers about what they expected from the a radical left-wing party in early 2015. Fateful decisions Greek government and what they would offer in retum. taken in the spring of 2010 are in no small part to blame The spring meetings of the IMF and World Bank, which for this dismal outcome. The 2010 rescue enabled Greece were then underway, afforded an excellent opportunity to to avoid defaulting on its obligations at that point, which seetherightpeople.JoiningPapaconstantinouatbreakfastthatmorningweretopofficialsoftheinstitutionscomprisingtheBrens.Greeceslegitimateinterests,however,somepolicymakersandanalystsbelievedwouldhavesparkedafinancialconflagrationakintothebankruptcyof were top officials of the institutions comprising the were arguably sacrificed in the process; though bound Troika, the tripartite group of crisis lenders with whom If toundergoprivation,theGreekpeoplealmostcertainlythe he was negotiating: Dominique Strauss-Kahn, the IMF t suffered substantially more than was necessary, as the managing director; Jean-Claude Trichet, the president nation's economy contracted by 22 percent since 2008 Furopean Commission's commissioner for economic and and the unemployment rate soared above 27 percent monetary affairs. "It was a very good meeting, in that the bebt was piled atop existing Greck debt - much of it at taking shape quickly," Papaconstantinou recalled in an measures demanded by the Troika in exchange for the interview, adding that the meeting focused on the amount rescue loans Athens received. Among economists, there of funding Greece would get as well as the procedure for is widespread agreement that Greece's debt should have there would be no restructuring of Greece's debt. A Greece's debt, the euro-zone crisis overall was more severe prowing number of independent analysts, seeing market and prolonged than it ought to have been. Indisputably, unsustainable levels, were predicting that Athens would the bailout proved a boon to many European banks, which eventually have to obtain relief one way or another from the received payment in full and on time on tens of billions hundreds of billions of euros it owed to private investors.' 2012. Their gains, however, were essentially subsidized by But the Troika bosses wanted the Greek leadership to 2012 . Their gains, however, were essentially subsidized by entertain no such thoughts. official loans extended to Athens. "It was in the most clear terms, aimed at me: 'George, do not open this issue," Papaconstantinou recalled. "I was not The main focus of this paper is the role played by the IME, a fool. I would never have opened this issue unilaterally, whose actions are examined in far greater depth than and then be told, in the media, that it is not an option, and has been heretofore available. Many books and articles have all the investors running for cover in 24 hours. It was about the curo-zone crisis have reported at length on "It was in the most clear terms, aimed at me: 'George, do . The main focus of this paper is the role played by the IME, not open this issue,'" Papaconstantinou recalled. "I was not whose actions are examined in far greater depth than a fool. I would never have opened this issue unilaterally, has been heretofore available. Many books and articles and then be told, in the media, that it is not an option, and hab been heretofore available. Many books and articles have all the investors running for cover in 24 hours. It was the machinations of top European policy makers, which a very delicate situation." are of particular interest to readers living in the euro Unbeknownst to Papaconstantinou - and the other area. This paper, by contrast, dwells on the IME, because principal officials in the room, except Strauss-Kahn - a doing so imparts a more global perspective to events and debt restructuring was being actively explored at the IMF, because people everywhere - not just Europeans - have though in the most sotto voce way imaginable. A small an enormous stake in nurturing a healthy multilateral group of Fund staffers held secret talks that spring, outside institution capable of fulfilling its lofty mission. Founded of Fund headquarters to avoid attracting notice, with seven decades ago when memories of the mutuallyofficials from the German and French finance ministries. destructive policies of the 1930s were still fresh, the Fund 1 See Beattic (2010). For a specific example of one gloomy assessment, 2 For insightful analyses of this issue; see Zettelmeyer, Trebesch and see Lachman (2010. Gulati (2011) and Xafa (2014). CIGI PAPERS NO. 61 - APRIL 2015 fosters international economic cooperation and serves as deals a setback to hopes for an orderly system of dealing chief guardian of global financial stability. In so doing, it with over-indebted countries. provides what academics call "global public goods," from which all nations broadly benefit and which no single. Beyond the rightness or wrongness of the IMF's approach is nation can deliver alone. A detailed look back at the Greck drama of spring 2010 Fund issued a post-mortem in mid-2012 acknowledging elucidates significant concerns about the IMF's governance notably over-optimistic growth assumptions. The report and its future management of sovereign debtand economic also pointed the finger at European officials for the length crises. The Fund has come under attack for yiclding to the of time Greece remained laden with excessive debt, clout of European policy makers and lending its credibility asserting: "An upfront debt restructuring would have been to a rescue that some of its senior staffers viewed with grave better for Greece although this was not acceptable to the misgivings. The result, critics lament, inflicted damage on euro partners" (IMF 2013). That contention drew outraged the Fund's long-run ability to serve as an independent rebuttals from Brussels and Frankfurt, with a number of arbiter and fixer of economic and financial problems; after officials accusing the Fund of historical revisionism. "T do all, the more tamished the Fund's technocratic judgment not recall the IMF's managing director Dominique Straussis by evidence of gross political interference, the less Kahn proposing early debt restructuring, Rehn said, 'but effective it can be at promoting international stability? I do recall that Christine Lagarde was opposed to it." effective it can be at promoting international stability. I do recall that Christine Lagarde was opposed to it," Moreover, the perception that the IMF was doing Europe's (Rehn quoted in Spiegel and Hope 2013). (Lagarde, who bidding inflamed tension over the Fund's long-standing succeeded Strauss-Kahn in mid-2011, was French finance governance problem - the disproportionate share of minister at the time of the first Greek rescue.) voting power that European countries hold relative to their economic size, the overrepresentation of those countries The account that follows is based on interviews with on the Fund's executive board and the control Europe has dozens of key participants as well as IMF documents, exercised over the managing directorship. This problem some of which the Fund has released publicly and some undermines the Fund's legitimacy and is a festering source of which it has not. 5 In addition to shedding new light of resentment among the world's rising powers, notably on what happened, this chronicle of events helps explain the BRICS (Brazil, Russia, India, China and South Africa). the reasons for the IMF's actions, thereby providing Some of the most scathing criticism about the IMF's right thing for Greece and for the long-term good of the approach in the spring of 2010 has been aimed at legal global economy. It highlights the importance of the IMF's acrobatics that Fund officials performed to facilitate the acceptance, as a conditicon of its participation in the rescue, first Greek rescue. Up until then, the Fund was operating of "junior partner" role in the Troika. This step is judged under a set of restrictions that for simplicity's sake might in the concluding section as being particularly ill-boding be called the "No More Argentinas rule," because it was for the Fund's ability to manage future crises, and policy adopted following one of the Fund's worst debacles in recommendations are offered for alleviating the harm. history - an effort in 2001 to rescue Argentina that ended At the centre of the story stands Strauss-Kahn, the in a catastrophic default a few months later. With the aim At the centre of the story stands Strauss-Kahn, the of preventing the IMF from ever again heaping fresh loans former French finance minister whose dynamic persona, on a country so unlikely to pay its debts, the Fund board combined with economic and political astuteness, gave established criteria in 2003 that a country receiving a large him formidable powers of persuasion on the international loan would have to meet - one criterion being "a high scene. The actions he took in the spring of 2010 and the probability" that the country's public debt is sustainable, thinking behind them receive major new illumination in based on "rigorous and systemic analysis" (IMF 2003). But this paper, but his true intentions ultimately remain a bit when the Greek crisis arose, the Fund created a last-minute of a mystery, because he was keeping his cards so close to approving the first rescue. Susan Schadler (2012a), a former approws. deputy director of the Fund's European Department (and a CIGI senior fellow), has accused the institution of having "bowed to short-sighted pressure from Europe" in making this rule change, arguing that as a result, "the IMF was 5 To the extent documents are available in the public recond, source set adrift" from sensible discipline over its lending 4 That information will be given in this paper, but not for documents could make future crises more difficult to handle, and it unavailable publidy. As for interviews, nearly all were conducted confidentiality unless they gave permission to bequoted, the purpose being to encourage candor about sensitive matters. In cases where permission for quotation was requested and granted, interviewees will be identified to the extent they have permitted, but source information about other material obtained from interviews will not be disclosed. 4 For fuller treatment of this subject, see Schudler (2013). One oft-heard theory is that, as a leading potential by the end of the decade. Moreover, it had done so without candidate of the Socialist Party for the French presidency, properly accounting for its profligacy, as becameshockingly Strauss-Kahn was using his IMF position to further his clear in mid-October 2009, when Papandreou's newly political ambitions. He surely laboured under an implicit elected government disclosed that Greece's budget deficit conflict of interest, because he would have been loath to for that year would be upwards of 12.5 percent of GDP, more take actions at the Fund that might have upset French than triple previous estimates. Although this revelation voters. But this paper offers no support for suspicions that suited the Socialist' political interests - they could point he allowed his personal interests to cloud his judgment; fingers at the previous centre-right regime for dishonesty no one provided me with a shred of convincing exidence - it also squared with the background and personality of that ethical dilemmas of that sort arose. If anything, Papandreou, a US, UK and Canadian-educated man who the evidence strongly suggests that Strauss-Kahn was put great store in transparency and good governance. The motivated by a desire to do what he thought best for the same was true of Papaconstantinou, his finance minister, a institution he led. He was deeply concerned about making London Schoot of Economics Ph.D. Whose rimless glasses the Fund had just undergone its own institutional crisis from their European colleagues for their candour, but - a crisis of relevancy - during a period from roughly having drastically revised the deficit estimates, they had 2003 to 2008 when financial markets were buoyant to deal with the consequences. The newly disclosed data and intemational rescues almost non-existent, raising sparked nervousness in the financial markets that Greece's questions about whether the world needed an institution debt could swell beyond the government's capacity to repay: like the Fund. For the IMF to be kept out of the euro zone, Over the previous six years, the ratio of Greek government which some powerful European officials preferred, would Over the previous six years, the ratio of Greek govemment have been "lethal" to the Fund, as Strauss-Kahn put it in debt as a proportion of CDP had hovered in the 9599 one interview with me. percent range - high compared to most euro-area one interview with mes - partners, but stable. Suddenly, the ratio was being The IMFs complicity in the rescue might therefore be adjusted upward to 115 percent of GDP for the end deemed a Faustian bargain of sorts. To become involved of 2009 , and there was no telling how much higher it in the Greek crisis, the Fund had to overcome strenuous might go in the future. Greece was obliged to pay much opposition from European officials who felt that their steeper interest rates on new bonds than it had during region ought to handle its own problems without its economic heyday in the years following its entry into international help. In the process, the Fund accepted the curo zone; moreover, the economy was hobbled by bargains, the hope at the time was that the costs would be the global financial crisis. So the debt-to-GDP ratio was less oppressive than they eventually proved to be. But the bound to rise, which might cause markets to become even IMF - and the global financial system it oversees - may more jittery and raise the country's borrowing costs still be paying the price for years to come. further. At the extreme, the country could get caught in THE FIRST SOS a vicious cycle, called "exploding debt dynamics," which refers to an ever-increasing debt-to-GDP ratio, as higher Scion of a famous family of Greck Socialist politicians interest rates, a sluggish economy and chronic deficits Only much later, in March 2012, would the idea discussed in those talks come to fruition, when Greece was granted At 2:00 a.m. on April 24, 2010, a plane bearing George the largest debt relief that any country has ever received. Papaconstantinou, Greece's finance minister, landed at First, the Troika would attempt to resolve the Greek Andrews Air Force Base outside Washington, DC, leaving crisis by giving Athens bailout loans of unprecedented little time before an important 7:00 a.m. breakfast meeting magnitude - an effort that would go terribly awry. at the IMF. Papaconstaninou's trip came amid urgent negotiations in Athens for an international bailout - the This is the story of the first Greek rescue. Its consequences first ever for a country in the euro zone - and although reverberate today as the euro area struggles with weak the deadline for completing the talks was just days away, growth and a rekindled crisis in Greece, where a halfhe wanted to make sure he had a firm understanding decade of economic misery led to the electoral victory of with Greece's rescuers about what they expected from the a radical left-wing party in early 2015. Fateful decisions Greek government and what they would offer in retum. taken in the spring of 2010 are in no small part to blame The spring meetings of the IMF and World Bank, which for this dismal outcome. The 2010 rescue enabled Greece were then underway, afforded an excellent opportunity to to avoid defaulting on its obligations at that point, which seetherightpeople.JoiningPapaconstantinouatbreakfastthatmorningweretopofficialsoftheinstitutionscomprisingtheBrens.Greeceslegitimateinterests,however,somepolicymakersandanalystsbelievedwouldhavesparkedafinancialconflagrationakintothebankruptcyof were top officials of the institutions comprising the were arguably sacrificed in the process; though bound Troika, the tripartite group of crisis lenders with whom If toundergoprivation,theGreekpeoplealmostcertainlythe he was negotiating: Dominique Strauss-Kahn, the IMF t suffered substantially more than was necessary, as the managing director; Jean-Claude Trichet, the president nation's economy contracted by 22 percent since 2008 Furopean Commission's commissioner for economic and and the unemployment rate soared above 27 percent monetary affairs. "It was a very good meeting, in that the bebt was piled atop existing Greck debt - much of it at taking shape quickly," Papaconstantinou recalled in an measures demanded by the Troika in exchange for the interview, adding that the meeting focused on the amount rescue loans Athens received. Among economists, there of funding Greece would get as well as the procedure for is widespread agreement that Greece's debt should have there would be no restructuring of Greece's debt. A Greece's debt, the euro-zone crisis overall was more severe prowing number of independent analysts, seeing market and prolonged than it ought to have been. Indisputably, unsustainable levels, were predicting that Athens would the bailout proved a boon to many European banks, which eventually have to obtain relief one way or another from the received payment in full and on time on tens of billions hundreds of billions of euros it owed to private investors.' 2012. Their gains, however, were essentially subsidized by But the Troika bosses wanted the Greek leadership to 2012 . Their gains, however, were essentially subsidized by entertain no such thoughts. official loans extended to Athens. "It was in the most clear terms, aimed at me: 'George, do not open this issue," Papaconstantinou recalled. "I was not The main focus of this paper is the role played by the IME, a fool. I would never have opened this issue unilaterally, whose actions are examined in far greater depth than and then be told, in the media, that it is not an option, and has been heretofore available. Many books and articles have all the investors running for cover in 24 hours. It was about the curo-zone crisis have reported at length on "It was in the most clear terms, aimed at me: 'George, do . The main focus of this paper is the role played by the IME, not open this issue,'" Papaconstantinou recalled. "I was not whose actions are examined in far greater depth than a fool. I would never have opened this issue unilaterally, has been heretofore available. Many books and articles and then be told, in the media, that it is not an option, and hab been heretofore available. Many books and articles have all the investors running for cover in 24 hours. It was the machinations of top European policy makers, which a very delicate situation." are of particular interest to readers living in the euro Unbeknownst to Papaconstantinou - and the other area. This paper, by contrast, dwells on the IME, because principal officials in the room, except Strauss-Kahn - a doing so imparts a more global perspective to events and debt restructuring was being actively explored at the IMF, because people everywhere - not just Europeans - have though in the most sotto voce way imaginable. A small an enormous stake in nurturing a healthy multilateral group of Fund staffers held secret talks that spring, outside institution capable of fulfilling its lofty mission. Founded of Fund headquarters to avoid attracting notice, with seven decades ago when memories of the mutuallyofficials from the German and French finance ministries. destructive policies of the 1930s were still fresh, the Fund 1 See Beattic (2010). For a specific example of one gloomy assessment, 2 For insightful analyses of this issue; see Zettelmeyer, Trebesch and see Lachman (2010. Gulati (2011) and Xafa (2014). CIGI PAPERS NO. 61 - APRIL 2015 fosters international economic cooperation and serves as deals a setback to hopes for an orderly system of dealing chief guardian of global financial stability. In so doing, it with over-indebted countries. provides what academics call "global public goods," from which all nations broadly benefit and which no single. Beyond the rightness or wrongness of the IMF's approach is nation can deliver alone. A detailed look back at the Greck drama of spring 2010 Fund issued a post-mortem in mid-2012 acknowledging elucidates significant concerns about the IMF's governance notably over-optimistic growth assumptions. The report and its future management of sovereign debtand economic also pointed the finger at European officials for the length crises. The Fund has come under attack for yiclding to the of time Greece remained laden with excessive debt, clout of European policy makers and lending its credibility asserting: "An upfront debt restructuring would have been to a rescue that some of its senior staffers viewed with grave better for Greece although this was not acceptable to the misgivings. The result, critics lament, inflicted damage on euro partners" (IMF 2013). That contention drew outraged the Fund's long-run ability to serve as an independent rebuttals from Brussels and Frankfurt, with a number of arbiter and fixer of economic and financial problems; after officials accusing the Fund of historical revisionism. "T do all, the more tamished the Fund's technocratic judgment not recall the IMF's managing director Dominique Straussis by evidence of gross political interference, the less Kahn proposing early debt restructuring, Rehn said, 'but effective it can be at promoting international stability? I do recall that Christine Lagarde was opposed to it." effective it can be at promoting international stability. I do recall that Christine Lagarde was opposed to it," Moreover, the perception that the IMF was doing Europe's (Rehn quoted in Spiegel and Hope 2013). (Lagarde, who bidding inflamed tension over the Fund's long-standing succeeded Strauss-Kahn in mid-2011, was French finance governance problem - the disproportionate share of minister at the time of the first Greek rescue.) voting power that European countries hold relative to their economic size, the overrepresentation of those countries The account that follows is based on interviews with on the Fund's executive board and the control Europe has dozens of key participants as well as IMF documents, exercised over the managing directorship. This problem some of which the Fund has released publicly and some undermines the Fund's legitimacy and is a festering source of which it has not. 5 In addition to shedding new light of resentment among the world's rising powers, notably on what happened, this chronicle of events helps explain the BRICS (Brazil, Russia, India, China and South Africa). the reasons for the IMF's actions, thereby providing Some of the most scathing criticism about the IMF's right thing for Greece and for the long-term good of the approach in the spring of 2010 has been aimed at legal global economy. It highlights the importance of the IMF's acrobatics that Fund officials performed to facilitate the acceptance, as a conditicon of its participation in the rescue, first Greek rescue. Up until then, the Fund was operating of "junior partner" role in the Troika. This step is judged under a set of restrictions that for simplicity's sake might in the concluding section as being particularly ill-boding be called the "No More Argentinas rule," because it was for the Fund's ability to manage future crises, and policy adopted following one of the Fund's worst debacles in recommendations are offered for alleviating the harm. history - an effort in 2001 to rescue Argentina that ended At the centre of the story stands Strauss-Kahn, the in a catastrophic default a few months later. With the aim At the centre of the story stands Strauss-Kahn, the of preventing the IMF from ever again heaping fresh loans former French finance minister whose dynamic persona, on a country so unlikely to pay its debts, the Fund board combined with economic and political astuteness, gave established criteria in 2003 that a country receiving a large him formidable powers of persuasion on the international loan would have to meet - one criterion being "a high scene. The actions he took in the spring of 2010 and the probability" that the country's public debt is sustainable, thinking behind them receive major new illumination in based on "rigorous and systemic analysis" (IMF 2003). But this paper, but his true intentions ultimately remain a bit when the Greek crisis arose, the Fund created a last-minute of a mystery, because he was keeping his cards so close to approving the first rescue. Susan Schadler (2012a), a former approws. deputy director of the Fund's European Department (and a CIGI senior fellow), has accused the institution of having "bowed to short-sighted pressure from Europe" in making this rule change, arguing that as a result, "the IMF was 5 To the extent documents are available in the public recond, source set adrift" from sensible discipline over its lending 4 That information will be given in this paper, but not for documents could make future crises more difficult to handle, and it unavailable publidy. As for interviews, nearly all were conducted confidentiality unless they gave permission to bequoted, the purpose being to encourage candor about sensitive matters. In cases where permission for quotation was requested and granted, interviewees will be identified to the extent they have permitted, but source information about other material obtained from interviews will not be disclosed. 4 For fuller treatment of this subject, see Schudler (2013). One oft-heard theory is that, as a leading potential by the end of the decade. Moreover, it had done so without candidate of the Socialist Party for the French presidency, properly accounting for its profligacy, as becameshockingly Strauss-Kahn was using his IMF position to further his clear in mid-October 2009, when Papandreou's newly political ambitions. He surely laboured under an implicit elected government disclosed that Greece's budget deficit conflict of interest, because he would have been loath to for that year would be upwards of 12.5 percent of GDP, more take actions at the Fund that might have upset French than triple previous estimates. Although this revelation voters. But this paper offers no support for suspicions that suited the Socialist' political interests - they could point he allowed his personal interests to cloud his judgment; fingers at the previous centre-right regime for dishonesty no one provided me with a shred of convincing exidence - it also squared with the background and personality of that ethical dilemmas of that sort arose. If anything, Papandreou, a US, UK and Canadian-educated man who the evidence strongly suggests that Strauss-Kahn was put great store in transparency and good governance. The motivated by a desire to do what he thought best for the same was true of Papaconstantinou, his finance minister, a institution he led. He was deeply concerned about making London Schoot of Economics Ph.D. Whose rimless glasses the Fund had just undergone its own institutional crisis from their European colleagues for their candour, but - a crisis of relevancy - during a period from roughly having drastically revised the deficit estimates, they had 2003 to 2008 when financial markets were buoyant to deal with the consequences. The newly disclosed data and intemational rescues almost non-existent, raising sparked nervousness in the financial markets that Greece's questions about whether the world needed an institution debt could swell beyond the government's capacity to repay: like the Fund. For the IMF to be kept out of the euro zone, Over the previous six years, the ratio of Greek government which some powerful European officials preferred, would Over the previous six years, the ratio of Greek govemment have been "lethal" to the Fund, as Strauss-Kahn put it in debt as a proportion of CDP had hovered in the 9599 one interview with me. percent range - high compared to most euro-area one interview with mes - partners, but stable. Suddenly, the ratio was being The IMFs complicity in the rescue might therefore be adjusted upward to 115 percent of GDP for the end deemed a Faustian bargain of sorts. To become involved of 2009 , and there was no telling how much higher it in the Greek crisis, the Fund had to overcome strenuous might go in the future. Greece was obliged to pay much opposition from European officials who felt that their steeper interest rates on new bonds than it had during region ought to handle its own problems without its economic heyday in the years following its entry into international help. In the process, the Fund accepted the curo zone; moreover, the economy was hobbled by bargains, the hope at the time was that the costs would be the global financial crisis. So the debt-to-GDP ratio was less oppressive than they eventually proved to be. But the bound to rise, which might cause markets to become even IMF - and the global financial system it oversees - may more jittery and raise the country's borrowing costs still be paying the price for years to come. further. At the extreme, the country could get caught in THE FIRST SOS a vicious cycle, called "exploding debt dynamics," which refers to an ever-increasing debt-to-GDP ratio, as higher Scion of a famous family of Greck Socialist politicians interest rates, a sluggish economy and chronic deficits