Ex-IMF chief Ajai Chopra criticises Ireland’s bailout

Ireland and other crisis countries could have had bailouts with "fewer constraints" if the European Central Bank had not been involved in the troika, said former International Monetary Fund chief Ajai Chopra.

Mr Chopra, who was the International Monetary Fund’s head of mission during Ireland’s 2010 bailout, said his team objected strongly to ECB proposals at the time in “robust” discussions.

They included a proposal that Ireland borrow tens of billions of euro more – beyond the €67.5 billion bailout loan package agreed – so that the ECB's emergency loans to Anglo Irish Bank could be repaid quickly.

"It was unfortunate and unnecessary for these things to be brought into the discussion because they were quite easily shot down," Mr Chopra told The Irish Times, speaking in Washington.

Heavy losses

Recalling the negotiations, the now-retired IMF official said there was “no question” senior bondholders in two “defunct” banks, Anglo Irish Bank and Irish Nationwide Building Society, should have suffered heavy lossses.

“To impose losses on those creditors I think would not have had the cataclysmic spillover implications that the ECB seemed to be worried about,” said Mr Chopra.

The IMF also resisted pressure from the ECB to force the Irish banks to sell off excess assets in a “rapid” deleveraging, far faster than the three years eventually agreed, so it could be repaid quickly.

Mr Chopra said that it took the ECB “some time to relent” on the issue.

The IMF didn’t win the battle on the degree of front-loading on tax increases and spending cuts to fix the public finances, though he said that the ECB wanted something that was “much, much more harsh”.

The two sides disagreed privately during the bailout negotiations, he said, but the practice was to “show consensus among the institutions so differences were often not put out in public,” he said.

Mr Chopra warned that post-crisis reforms in Europe had not gone far enough to protect the public from another banking disaster.

‘Doom loop’

Until a pan-European centrally funded insurance scheme for bank deposits was created, the “doom loop” that would impose the cost of banking collapses on national governments would not be cut, he said.

“Have the changes that the euro area has put in place made it a more resilient monetary union that can withstand further shocks? My answer to that is no,” he said, describing the euro area as “fragile”.

On Ireland’s post-crisis budgets, Mr Chopra said that criticism of unexpected government spending increases in 2016 are “exaggerated”.