Monday 18 December 2017

You paid too much for bailout: Chopra tells us

Clodagh Sheehy

Ireland paid too much for the bailout because the EU wouldn't let the country burn bondholders, the IMF chief who designed the rescue plan says.

Ajai Chopra, former deputy director of the International Monetary Fund, insisted to the Banking Inquiry that the ECB forced Ireland into a bailout with an ultimatum. He added: “Ultimatums are not the right way to do business.”

Ajai Chopra, former deputy director of the IMF leaves the inquiry
Ajai Chopra, former deputy director of the IMF leaves the inquiry

Burning the bondholders, which the ECB would not permit, could have made a sizeable cut in Ireland’s debt, according to Mr Chopra.

Europe’s decision to veto the burning of senior bondholders meant a “higher burden for Irish taxpayers and a higher public debt”, he said.

Mr Chopra told Deputy Michael McGrath there might have been about €16bn outstanding to senior bondholders when the bailout programme started.

“As a rule of thumb, if you discounted those by half, you get about €8bn, which is several percent of GDP,” he said,

Mr Chopra explained that while it was not possible to be sure of the figures, “I think it could have been a sizeable contribution – yes.”

And he thought the Irish taxpayers had been made to bear a disproportionate burden as “there was not sufficient burden-sharing with senior bondholders”.

On the ultimatum from the ECB, he said this happened because the European Commission and the ECB often put euro-wide concerns above those of individual member states.

Letters between ECB president Jean Claude Trichet and Finance Minister Brian Lenihan in 2010 showed that Ireland was being issued with an ultimatum, Mr Chopra argued.

He told the inquiry: “You have seen such ultimatums were delivered in the case of Ireland and more recently in Greece.”

Assistance from the ECB was provided begrudgingly and Europe’s decision to solve each country’s financial problems individually worsened the crisis, he said.

Mr Chopra, who was appearing before the committee voluntarily and in a personal capacity, praised Ireland and the Irish public servants for how they dealt with the crisis. Ireland had an excellent record of policy implementation, he stressed.

The 12 quarterly reviews of the bailout programme were completed like clockwork –which was rare and not normally accomplished.


Looking back at the time the rescue plan was being put together, he said he did not expect that things would actually get worse at first, but they did get “quite a bit worse for a while”.

The Government here was “swamped” by conditions in the broader eurozone, he said, but once those conditions began to be addressed in Europe “I think Ireland ended up doing better than I thought it would”.

Mr Chopra felt that Ireland could have still have emerged even better out of the bailout if there had been a stronger overall macro-economic approach by Europe, along with greater European unity and solidarity.

He believed that it was an achievement for Ireland to exit the bailout, although some legacy issues remained. The Irish banking crisis was “enormous” and ranked among one of the most expensive banking crises, but now the country was in a “pretty strong position”.

At the same time, balance sheets, particularly household balance sheets, were still stretched – and banks were not completely healed.

Meanwhile, Marco Buti of the European Commission criticised the then Irish government for not consulting its EU partners before the blanket bank guarantee, which, he said, was “too generous” and “magnified the impact of the fiscal crisis”.

On the decision not to burn bondholders, Mr Buti , who has been Director General for Economic and Financial Affairs at the Commission since December 2008, said both Ireland and the eurozone as a whole were “in a life threatening situation”.

“Spillovers within Ireland would have been too risky,” he added.

Mr Buti was clear that the decision to give a bank guarantee was taken in very difficult circumstances characterised by great risk and uncertainty and said he did not envy those who had to make the decision.

His only criticism of it was that the Irish government of the time did not consult its European partners.

This, he said, “heightened competition for bank funding at the moment of growing tension in financial markets across Europe”.

Irish Independent

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