Five years after the Irish bailout negotiations, Ajai Chopra, the man who became the public face of the financial fix-it team sent to Dublin, sits in his Washington DC office reflecting on Ireland’s crisis, the grey weather mirroring the day he first arrived there in November 2010.
The photograph taken of Chopra and fellow International Monetary Fund officials walking by a man on a Dublin street holding a begging cup became one of the iconic images that captured those dark economic times.
Sitting in his office near Dupont Circle, Chopra speaks warmly of the reception he received in Ireland as the IMF head of mission during the bailout, still surprised by the "quite striking" number of times he was recognised.
Unlike IMF colleagues who were sent to Greece that same year, he "didn't have to hunker down and hide" in Dublin. The positive public reaction gave him personal encouragement, says the softly-spoken economist.
Careful tone
Now at the Peterson Institute for International Economics, Chopra was careful to strike a constructive and careful tone during early-bailout public appearances, never patronising about what had happened or lecturing about what needed to be done.
“I don’t think I ever experienced a harsh word from anybody, on the street, in a restaurant or a store. It was always kind, considerate. There was sort of a recognition that there was a job to be done and I was doing my job,” he says, speaking slowly, ever mindful of his words.
The nickname quickly given to him, “Chopper”, amuses him, even if he questions its accuracy.
“We were the ones who were actually trying to be less on the chopping side compared with the others,” he says, referring to the other members of the troika, on the European side.
Today, he has become a sharp critic of the European Central Bank, attacking it for putting its own balance sheet ahead of the Irish public, for issuing "gratuitous" ultimatums to then minister for finance Brian Lenihan and for fuelling a run on Irish banks by briefing privately about funding concerns.
The euro zone was not prepared for crisis management five years ago, so the ECB’s role then was unavoidable, even though matters would be different today. But the Irish experience, and that of others, could have been different if the ECB had been absent.
Fewer constraints
“I do think that if it wasn’t part of the troika that we could well have, between the
European Commission
and the IMF, put together the crisis programmes with fewer constraints,” he says. He declines to say whether the ECB was fair to Ireland.
Fair is a "very value-laden word", he says, and it is "not for me to judge". However, there is "no question," he says, that Anglo Irish Bank and Irish Nationwide Building Society senior bondholders should have been burned. Both had stayed alive because of ECB funding, but they were effectively "defunct".
Burning the senior bondholders across all the Irish banks could have saved Irish taxpayers €8 billion, with a 50 per cent haircut, Chopra believes, but he does not accept that US treasury secretary Timothy Geithner’s objections were decisive: “Even if the US had been favourable, I don’t think the Europeans would have taken that route.”
The ECB was the aggressive negotiator in the bailout negotiations, he says. By contrast, the IMF was “influential” in winning arguments on a slower pace of fiscal adjustment and on the deleveraging – the sell-off of assets and shrinking of balance sheets – of the Irish banks.
Equally, the IMF pushed back strongly against demands for ever-more spending cuts and tax increases – since Dublin had started to fix its finances from 2008 and that additional front-loading to convince the markets was not needed.
“We didn’t win that battle, but let me put it this way: the ECB wanted something that was much, much more harsh than what was finally agreed,” says the now retired IMF official, who says he is saying publicly what he was arguing privately.
"The discussions we had were quite robust. We would press them but on many of these issues the final decisions were not made by the teams in Dublin, they were made by the heads of institutions," he tells The Irish Times.
Sometimes, the IMF team agreed with their Dublin-based ECB and commission counterparts, only to be constrained by their bosses in Frankfurt and Brussels and by the euro zone’s political masters, he says. The troika’s practice was “to show consensus”.
Differences were hidden, though the IMF tried to distinguish its views in subtle ways during the troika’s press conferences and how it wrote reports.
Chopra says Ireland’s 12.5 per cent corporate tax rate was at risk. “There were some creditor countries that were making a fuss about this,” he says. The IMF supported the Irish on resisting this.
“This was a banking crisis,” he says. “The corporate tax rate, which was very much a part of the Irish business model, was not relevant at that time as a policy tool.”
Chopra agrees with retired Central Bank governor Patrick Honohan that the European Stability Mechanism (ESM), Europe's permanent bailout facility, should have been used to recapitalise the banks in 2012 when it "got some initial political traction". Since then, the concept has lost political backing and he doesn't see how the ESM can be used now because its procedures are "so cumbersome".
Political capital
The Government has not wasted a crisis by failing to make reforms in the legal and medical professions, he believes, since they were “not relevant for the nature of this crisis”. All countries need reforms but governments must prioritise, he says.
“If you can do a few other things and they don’t cost you political capital, do them but if it’s going to cost you political capital and it’s going to detract you from doing the more fundamental things, I just don’t think that it is necessary,” he says.
The EU’s banking reforms have not gone far enough, he believes. Nor has the euro zone properly made itself into a more resilient monetary union that can withstand further shocks. A centrally funded deposit insurance scheme is required to sever the “doom loop” that ties sovereign states to failing banks.
Though now far away in Washington , he agrees with Minister for Public Expenditure and Reform Brendan Howlin's letter to the Financial Times on Monday, when he challenged the view that Ireland was funding tax cuts on the back of windfall corporation tax revenues.
The concerns about the 2016 budget are “exaggerated”, Chopra argues.
“It is certainly something that one needs to keep a watch on, but I think it goes much too far to say that the lessons have not been learned,” he says. Once again, Chopra is siding with the Irish.
