New Paper Finds that the IMF is Promoting Socially and Economically Harmful Policies Broadly Across Europe

A new research paper finds that the International Monetary Fund (IMF) has been pushing for reduced spending, shrinking government, and cutting social protections for broad sectors of the population in Europe Union member countries, often regardless of a country's specific economic circumstances. The paper, "Macroeconomic Policy Advice and the Article IV Consultations: An EU Case Study," from the Center for Economic and Policy Research (CEPR), also finds that the IMF has repeatedly emphasized cutting spending, including on public pensions and health care, and raising the retirement age -- despite the pro-cyclical nature of some of these policies and despite the already severe impact of the economic recession confronting Europe.

"From these documents, the IMF appears to be pursuing a political and ideological agenda in Europe, with a very strong prejudice toward spending cuts and smaller government," CEPR Co-Director Mark Weisbrot said. "These are policies that have helped cause the eurozone's second recession in three years, and record levels of unemployment."

The paper examines recent IMF policy recommendations in 27 European countries to see whether these recommendations may have contributed to the ongoing crisis in Europe, and also how they might affect other European Union goals such as those of Europe 2020, which seeks to reduce social exclusion, promote public investment in research and development, and promote employment and education.

The paper focuses on Article IV consultations, which provide recommendations on a broad range of issues including fiscal, monetary, and financial policy; health care and pensions; labor market policy (including wages, unemployment compensation, and employment protections); and numerous other policy issues. Fiscal adjustments, employment generation and social protection are particular areas of scrutiny.

The paper notes that "it is not clear how all of these policy issues fit under the mandate of the member country's 'compliance with its [international] policy obligations,'" nor "how these consultations and recommendations have helped to 'promote stability' in Europe, especially in light of the macroeconomic outcomes of the past three years."

Last week the IMF released updated economic growth projections for the world, noting that "that the euro area continues to pose a large downside risk to the global outlook." The IMF downgraded its 2013 forecast for the euro area, now expecting it "to contract slightly." But instead of recognizing the danger of austerity and pro-cyclical policies in Europe, the IMF recommends staying the course, saying that "the risk of prolonged stagnation in the euro area would rise if the momentum for reform is not maintained."

The paper notes that the IMF has repeatedly been overly optimistic in its economic growth projections for crisis-hit EU countries such as Greece and Spain, whose downturns have been worsened as spending cuts and other austerity measures have been implemented.

"The IMF is of course the junior partner in the troika, with the European Commission and European Central Bank calling the shots," CEPR Co-Director Mark Weisbrot noted. "But they are still an important influence, and these consultations show that their influence, together with their partners, has been unnecessarily harmful for the people of Europe, who are struggling with unemployment and recession."

"As weak as the U.S. economy is, we are very fortunate that our government has not implemented the kinds of policies that we have seen in Europe since 2008."