“The problem is much more a pragmatic rather than a moral one”

In the Irish Times, former deputy director of the International Monetary Fund, Donal Donovan, provides a timely, and useful, analysis of the various parties’ positions on the €85 billion IMF/EU bail-out ahead of the Irish general election.  Here’s what he has to say on “burning the bondholders”.  From the Irish Times article

A major element in all parties’ programmes is the call to renegotiate the debt owed to bondholders. Implicit in the tone of the Fine Gael and Labour (and even more so Sinn Féin) positions is the idea that the MoU can be adjusted so as to achieve this objective.

There are two aspects to this. First, as Fianna Fáil has rightly argued, because Ireland is in a currency union, the matter could only be addressed jointly with our euro partners. Those suggesting that this be approached with some caution have been inaccurately and unfairly portrayed as wanting simply to protect the interests of “greedy banks”. In fact, restructuring has quite often been a component of the resolution of debt problems in the past with the full involvement of the IMF (Mexico in the early 1980s is a good example).

The problem is much more a pragmatic rather than a moral one – to try to determine whether and when a solution can be identified, within a euro-zone-wide context, that strengthens the stability of the overall financial system and encourages associated existing and future flows of credit. The latter matters crucially for countries like Ireland and Greece who will be contemplating a return to the market at some stage. Various possible approaches are being explored currently. Rather than seeing this as primarily a matter of negotiation between Ireland and the EU, the most effective role for the new Irish government would be to contribute constructively to the debate on how to meet these common objectives.

Sinn Féin’s approach, however, is different in that it advocates a unilateral default, à la Argentina or Russia. However, these countries were not members of a currency union. After having been shut out of international financial markets following the default, they could – and did – print their own money to finance any emerging budget deficit. It can certainly be argued that a logical consequence of the Sinn Féin position is abandonment of the co-operative approach and even of the euro itself.

A second aspect (not touched upon by any of the parties) concerns how much could the budgetary savings from a bond restructuring operation actually turn out to be. Both the Central Bank and the European Central Bank have provided massive financing to Irish banks and some of this funding was lent to enable banks to repay not only deposits but maturing bonds. Thus some of the bond holders may have escaped a possible restructuring net. [added emphasis throughout]

Read the whole thing.

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  • When are pragmatic problems not moral problems? I doubt John Dewey would have accepted such an arbitrary distinction.

  • Mack

    When are pragmatic problems not moral problems?

    True in the broad complexity of reality.

    To take your rhetorically question literally, the answer would be after a problem has been thought about for a bit, the natural tendency to apply reductionist logic to any given situation will result in some people lopping of parts of the complex problem to best suit whatever their world view is.

    Might make more sense to think in terms of purely pragmatic or moral solutions in this course. Although I think they are both pragmatic, there is no guarantee that Europe will actually find a mutually beneficial path through this crisis. Which would validate the ‘Ourselves Alone approach’, after the fact. On balance it’s probably less risky to at least try and persuade the Europeans at this point. Hence the 3-1 break down in terms of political positioning and maybe 7/8-1 in terms of support at the moment for those positions..

  • Greenflag

    Does Mr Donovan have anything to say about the IMF report on it’s own audit which found that the IMF practiced only too well , what it preached governments and central banks around the world to avoid ? Another case of top down hypocrisy with IMF officials relating to the USA & UK authorities in much the same way that the Irish RC hierarchy relate to the Vatican 🙁

    Here’s an excerpt .

    ‘The Washington-based IMF, which was created after World War II to help ensure the stability of the global monetary system, paid too little heed to deteriorating banks’ balance sheets and financial regulatory issues, according to the audit. The report lists various ways the fund can avoid similar mistakes in the future, including through changes in governance to make room for candid and dissenting views.

    IMF staff “often seemed to champion the U.S. financial sector and the authorities’ policies,” the audit said.

    “This is a political institution. At the end those are important shareholders and it’s difficult to challenge them,” Moises Schwartz, the director of the audit unit, said in an interview yesterday.

    the full article here


  • Greenflag

    @ Mack ,

    ‘there is no guarantee that Europe will actually find a mutually beneficial path through this crisis.’

    In which case our ‘new’ leaders had better have a solid plan B in waiting and some diplomatic visits to Iceland might help shake up the Eurocrats in Frankfurt and Brussels .

  • Pete Baker

    A “solid plan B” is all well and good, greenie.

    The problem is the destination that some people’s ‘plan A’ would deliver Ireland to.

    Not that there’s anything wrong in advocating such a course of action – as long as those doing so understand it, and are clear to the public about the implications.

  • George

    “It can certainly be argued that a logical consequence of the Sinn Féin position is abandonment of the co-operative approach and even of the euro itself.”

    Doesn’t feel very much like a “co-operative approach for the Irish taxpayer at the moment, rather being buried up to the waist and surrounded by people considered erstwhile friends and neighbours carrying stones, so what’s to abandon but hope itself?

  • Greenflag

    Pete ,

    ‘The problem is the destination that some people’s ‘plan A’ would deliver Ireland to.’

    Oh that problem ? I would’nt worry . The more important problem is the fact that the world’s major powers are heading towards ‘currency ‘wars as the USA tries to print it’s way out of debt while what I term the ‘anarchic’ capitaliam brought about by irresponsible banks and negligent and self serving politicians worldwide continues on it’s self destructive path .

    As the Deutsche Boerse prepares to buy out the New York Stock Exchange -where oh where did that ‘national ‘ sovereignty go ? the salient fact in the below link is that the ‘derivatives’ market is replacing the stock market as that’s where the returns are greatest-

    To remind ourselves for any who may look beyond the threat of SF isolationism .

    ‘A derivative is a contract between two parties linked to the future value or status of the underlying asset to which it refers, including the development of interest rates or prices of commodities such as oil or wheat.’

    In plain English oder auf einfaches Deutsch -the gambling casino that was and is the NYSE is about to become an even bigger ‘gambling ‘ casino with the increased prospect of enabling the very rich (American/European/World ) minority to make even greater profits on the back of scarce resources and on the ‘food ‘ production and supplies that keep a couple of billion people close to the edge of starvation .

    Think the Indian and Irish famines of the 19th centuries and how at that time millions were made by the so called ‘free marketeeers’ in India and Ireland while the in total 30 million or so deaths were blamed on a ‘natural disaster’ over which the then lords of the universe had no control ?

    The question which our politicians -all of them -all parties -somehow seem loath to ask or even explain is why did the then government under Messrs Cowen and Lenihan hand over 7 million to Merrill Lynch for ‘financial advice’ as to what to do when the run on the banks began and despite Merrill Lynch advising NOT to guarantee ALL of the bondholders i.e those who were ‘gambling ‘ with Irish property values -they (our Government went ahead and did so )

    Was it bone headed stupidity or were their hands forced by our so called European (including British ) friends )?


  • Greenflag


    And then there were the millions and billions stashed away in AIB and BOI as well as Anglo Irish by multinationals either on short term or longer term deposit or in transit or increasing returns by means of the ‘Dutch ‘ sandwich school of quick returns via paper manipulation and tax ‘avoidance ‘ – the safety and security of all of which took precedent over the interest of Irish taxpayers .

    Our ‘political ‘ naked emperors will of course not dwell for any length on such matters as they get down to the business of being re-elected or elected to an almost ‘irrelevant ‘ institution at least in terms of this particular ‘crisis’ .

  • Pete Baker

    “Think the Indian and Irish famines of the 19th centuries…”

    That’s all very well, greenie, but we’re talking about what happens next.

    In Ireland.

    In the 21st Century.

  • tacapall

    “The Protocols of Zion”

    What also indeed is, in substance, a loan, especially a foreign loan? A loan is – an issue of government bills of exchange containing a percentage obligation commensurate to the sum of the loan capital. If the loan bears a charge of 5 per cent, then in twenty years the State vainly pays away in interest a sum equal to the loan borrowed, in forty years it is paying a double sum, in sixty – treble, and all the while the debt remains an unpaid debt.

    We shall replace the money markets by grandiose government credit institutions, the object of which will be to fix the price of industrial values in accordance with government views. These institutions will be in a position to fling upon the market five hundred millions of industrial paper in one day, or to buy up for the same amount. In this way all industrial undertakings will come into dependence upon us. You may imagine for yourselves what immense power we shall thereby secure for ourselves ….

  • Greenflag

    Pete ,

    ‘That’s all very well, greenie, but we’re talking about what happens next.’

    ‘In Ireland.’ in the 21st century.?

    Whatever about the rest of the century I’d guess the next two to three years will include

    a) A change of Government and then

    b) An attempt to undo some and renegotiate the terms of this IMF/ECB crooked deal.

    If b) for whatever reason or reasons becomes impossible then the career of politician in this country will be about as popular a choice of livelihood as that of Catholic priest . It does not bear thinking about .

    More importantly the ‘masters of the universal economy -the IMF -the G-20 – the Federal Reserve , ECB , Bank of England and those who ‘administer ‘ monetary and economic and currency policies around the world are still nowhere close to a n overdue reform of the world banking system . Bretton Woods don’t work in this new 21st century and as of now the politicians , bankers , are in sleepwalking mode .

    I’ve said it before and I’ll repeat it – THEY don’t know and they are playing the game of trying to return to the previous game as it was played before the world’s economy went belly up..

    Next bubble ahead -Chinese , Australian or Canadian property followed by gold or by another reduction in US housing prices ?

    Not only is there no light ahead but the several major parties and powers involved – haven’t yet located the entrance to the tunnel and there is considerable doubt among commentators whether or not they have even begun the search seriously :(?

  • wild turkey

    the problem is strictly pragmatic

    can we all get a grip… and then move on?

    on the economic, social, and at the end of the day, human issues arising from irelands economic and financial situation,our political leaders and the bankers feel far less moral anguish than the next piece of bog roll they will reach for.

    they don’t give a fuck… and with with respect to the economic model they subscribe to, why should they?

    greed and violence = economic efficiency.

    perhaps not in the pareto sense, but how many of these fuckers have the slightest sense of what is traditionally called (and no my tongue is not in cheek) Welfare economics.