The IMF and the European Debt Crisis

The European debt and banking crisis of 2008–11 posed unprecedented challenges for the International Monetary Fund. The IMF was accustomed to dealing with financial crises in developing countries; it did not expect to see these crises in advanced economies. The requisite emergency loans strained its financial resources. Currency devaluation, its standard remedy for restoring a country’s international competitiveness, was not available to countries in the eurozone, while writing down debt was impossible because the debt in question was held by Europe’s own banks. The IMF was forced to coordinate with the European Commission and the European Central Bank, serving as one leg in what became known as the troika. Its course of action in Europe made it vulnerable to accusations from poorer countries that it granted undue concessions to its wealthier European members. James reviews criticisms of the IMF’s performance but ultimately offers a positive assessment of its actions in novel circumstances and highlights its capacity to learn from its mistakes.