Wednesday 13 December 2017

DSK downfall a blow for Ireland

The frontrunner for the IMF's top job, Christine Lagarde, has taken a hard line on our corporation tax, writes Daniel McConnell

WHATEVER the truth of what went on bet-ween Domin-ique Strauss-Kahn (DSK) and a Guinean chamber maid in room number 2806 at the luxury Sofitel in New York, the repercussions of his demise for the outcome of the Irish bailout should not be underestimated.

Whether's he's guilty or innocent, the media frenzy which surrounded his arrest and which ultimately forced Strauss-Kahn's resignation as head of the IMF is, without question, a major blow to this country's chances of recovery.

His downfall comes at a highly delicate time not only for Ireland, but for the wider eurozone, and Strauss-Kahn and his IMF have been very vocal in their opposition to how Europe, and particularly the European Central Bank, has been treating Ireland.

Last Monday's summary review of Ireland's bailout plan by the IMF, signed off by Strauss-Kahn before the scandal erupted, expressed frustration with Europe's failure to fully support Ireland's economic programme.

Reading between the lines of international economic and diplomatic language, the IMF stated clearly it believes Ireland is getting a lousy deal from our European "friends" and our recovery cannot succeed unless the terms are radically altered.

"And that's where the importance of Strauss-Kahn comes in. One can safely assume that Strauss-Kahn, who was arrested in New York on his way to attend a meeting of eurozone finance ministers, intended to deliver these warnings in person," economist Gary O'Callaghan wrote last Thursday.

Described as a highly hands-on operator, Strauss-Kahn has been intimately involved in the detail of the IMF programmes for Greece, Ireland and now Portugal. "Far more closely involved than is normal for a managing director," O'Callaghan added.

The 62-year-old's absence at such a crucial stage from the game of brinkmanship in solving the euro crisis, where he would have "demanded" a better deal for Ireland, is for us a huge lost opportunity.

The manner of his downfall, the fact that it occurred in America (whose animosity toward France is well known), and his intention to run for president in France against incumbent Nicolas Sarkozy has led many in France and beyond to conclude he has been the victim of a political assassination.

A poll in a French newspaper last week found a majority of the people believed there was some element of a conspiracy to prevent him from

becoming president. Some of the extreme theories included the one that the US was helping pay back Sarkozy for his role and assistance in Libya in recent months.

Either way, DSK has resigned and Ireland has lost a much-needed ally.

Last Monday's IMF review was to determine whether Ireland had done enough to deserve the latest instalment of IMF cash.

In Strauss-Kahn's absence, his deputy managing director, John Lipsky, who has taken charge for an interim period, said that the recent stress tests and bank reforms had been "crucial" for economic recovery and noted the immense difficulties in making them happen. In a direct attack on the ECB, Lipsky stated that the "medium-term availability of euro-system financing would support this process" and help to "regain market-based funding".

This was the very thing that the Government had sought ahead of the stress tests in March, which some members of the ECB favoured, but which was ultimately torpedoed by France, Germany and others late in the day.

The IMF also viewed the ECB's ad-hoc commitment to continue emergency funding to Irish banks as totally insufficient in helping to restore wider confidence in Ireland.

There was further criticism of Europe, given that the Irish bailout package is based on the Government returning to the markets as early as next year.

"Supporting these efforts with a more comprehensive European plan would help overcome market doubts, regain market access, reduce the threat of spillovers, and bring about a recovery of the Irish economy," the IMF note said strongly.

But it seems our European friends are not for turning.

At the same time as the IMF was giving the French and Germans a good lash, at a major conference of economists in Brussels, where all the bigwigs like Jean-Claude Trichet, Jean-Claude Juncker and Jose Manuel Barroso were in attendance, German Finance Minister Wolfgang Schauble was having a right lash back.

He left no one in any doubt that "irresponsible" countries like Ireland, Greece and Portugal, need to adhere to their austerity programmes, pay the interest rates, be grateful for the help they are getting and stop complaining.

"It is essential that European Monetary Union's institutional structures are indeed capable of obliging euro members to adopt a fiscal and budgetary policy that reflects their responsibility for the common currency," he told delegates.

"For those who think that the framework I have outlined is objectionable, it is worth remembering that the European Monetary Union was not intended to be a quick fix for eurozone members or, for that matter, a get-rich scheme for financial speculators. It was not meant to be a system of redistribution from richer to poorer countries via cheaper borrowing for governments by means of common eurobonds or fiscal transfers. European Monetary Union won't succeed if a number of countries persistently run deficits and weaken their competitiveness at the expense of the euro's stability," he insisted.

Strauss-Kahn may now be out on bail, under house arrest in Manhattan, but the race to succeed him is hotting up, with France's Finance Minister Christine Lagarde seen as the frontrunner. Last night her appointment seemed almost certain as UK Chancellor George Osborne came out publicly in favour of her getting the top job at the IMF.

However, her appointment would be a further blow to Ireland in its fight for economic equity. The glamorous 55-year-old, who has been embroiled in a domestic cronyism scandal of late, has had a clear role in advising Sarkozy in his constant attack on Ireland's 12.5 per cent corporation tax rate.

If she is successful, she will have to perform a total volte-face if she is to fit in with the current thinking within the Washington DC-based IMF.

Ajai Chopra of the IMF recently reiterated his calls for European institutions to do far more to help Ireland in its predicament -- and stopped just short of saying that the elegant French diplomat shouldn't get the job.

While most people have been enthralled by the sexual antics of DSK, the impact and fallout of his demise from the top IMF post has hurt Ireland, as will the elevation of his most likely successor.

Sunday Independent

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