Honohan: crash ‘doom loop’ would have cost us more without IMF
WITHOUT a loan package from the International Monetary Fund (IMF), Ireland risked heading into a “doom loop” of higher financing costs and loss of access to the markets, the country’s central bank governor during the crisis years has said.
In November 2010, the European Commission, ECB and IMF agreed to provide €67.5bn in loans in exchange for deep cuts in public spending to stabilise the country’s finances.
“If we had kept going on our own, trying to turn this around in the face of financial market turbulence and very high interest rates, it would surely have been more costly than going into the programme where we had assurance for three years of adequate funding at what, in the end, was an adequate, sufficiently low interest charge,” Patrick Honohan told the IMF’s in-house ‘Finance & Development’ magazine.
While the ECB was accused of bullying the country in forcing the government to bear the costs of bailing out the banks in exchange for support, the IMF emerged largely unscathed, despite signing up for the same policies as the ECB and the Commission at the time.
“The IMF captured the confidence of the nation to a surprising extent.
“They spoke plainly, sensitively, and directly and people said ‘Ah, these guys are actually here to help us’,” Mr Honohan said.
“There was that tension between the lenders and borrowers as to how long the adjustment would take, but having set the amount of adjustment, it was the Irish government’s decision as to how that adjustment was to be divided between tax increases and spending cuts.”