New CEPR paper on the contribution of IMF recommendations to the ongoing crisis in Europe

The Center for Economic and Policy Research (CEPR) in Washington D.C. has published a paper examining the policy recommendations made by the IMF to European Union Countries for the years 2008-2011.

  Under Article 4 of its Memorandum of Understanding, the IMF is charged with "(i) overseeing the international monetary system to ensure its effective operation and (ii) monitoring each member's compliance with its policy obligations." (IMF) As part of this 'surveillance', the fund continually monitors the economy of member countries, including country visits and consultations with stakeholders. It also makes policy recommendations.

The CEPR paper examines the advice given by the IMF over four years and finds a consistent pattern of policy recommendations, "which indicates (1) a macroeconomic policy that focuses on reducing spending and shrinking the size of government, in many cases regardless of whether this is appropriate or necessary, or may even exacerbate an economic downturn; and (2) a focus on other policy issues that would tend to reduce social protections for broad sectors of the population (including public pensions, healthcare , and employment protections), reduce labor's share of national income, and possibly increase poverty, social exclusion, and economic and social inequality as a result." (CEPR)

  Its is unsurprising, perhaps, that this is the path chosen by the IMF. However, as the paper points out, the IMF is overwhelmingly influenced by European governments through its governance system and these same European governments also subscribe to broader European Union goals, such as those articulated in the Europe 2020 strategy of a sustainable and inclusive economy. The paper points to the tension between these goals of a reduction in social exclusion, an increase in research and development and climate change goals, and the fiscal consolidation and cuts to social expenditure as advocated by the IMF.

The paper recommends that the IMF engage in an Independent Evaluation Office (IEO) review of its policy advice in Europe, which might enable it to "play a constructive role in Europe's recovery" and "demonstrate the IMF's commitment to the goals of accountability and transparency in its role as 'trusted advisor'". (CEPR)

  The paper can be accessed here.