IMF hits out at EU over bank debt
Tuesday, September 18, 2012
The IMF has made its most direct criticism of the EU so far for forcing Irish taxpayers to shoulder most of the country’s bank debt.
It came in a report that outlined its tensions with the EU and ECB over bailouts.
Meanwhile in Berlin, Angela Merkel, the German chancellor, refused to be drawn on progress in restructuring some of the €62bn bank debt, saying talks were ongoing.
The IMF has been pushing the EU to reduce the cost of Ireland’s bank debt, pointing out that without this and with such low growth rates, the country could not afford it.
It spelled out its frustrations in having to co-operate with a third party — in this case the European Commission and the ECB — on the three eurozone country bailouts.
"Institutional constraints in the euro area occasionally limited alternative policy options that could otherwise have been considered — notably, debt restructuring to strengthen debt sustainability, particularly for bank debt in Ireland and sovereign debt in Greece," the report said.
It also mentioned delays in taking decisions that had the IMF been working on its own could have been taken more quickly, and said that this added a layer of complexity to the process.
It made specific reference to the conditions attached to the loans saying that the IMF’s preferred way is to have fewer and more targeted conditions, while the EU and ECB went for more detailed and wide-ranging conditions.
As well as pointing to their tradition of forcing bondholders to assume debt in countries where they are called in to bailout, they also referred to actions of the ECB, which was seen as being exceptionally tough on Ireland.
The report said that the size and duration of the ECB’s liquidity support of making cash available was among the sensitive items that resulted in lengthy talks within the troika.
This is an ongoing problem for Ireland having failed to convince the ECB to commit to long-term support, and it is also related to the complex issue of cutting the cost of the Anglo Irish promissory notes.
The IMF made several references to Ireland and to Portugal and Greece in their series of reports on the 67 programmes they are involved with in 44 countries over the past decade.
In the meantime the pace of talks to lower the cost of the bank debt has picked up with the ECB saying they were under time pressure to find a solution.
Ms Merkel, one of the EU leaders who agreed the country’s debt should be cut at the June summit, said she knew the Irish demands and that the country was achieving structural reforms, meeting programme targets, and had successfully sold bonds on the market recently.
"That is why I wish Ireland much success in future. Apart from that I cannot tell you anything today."