Belfast Telegraph

IMF rescued Ireland from 'doom loop', says former banking boss

Funding deal: Patrick Honohan
Funding deal: Patrick Honohan

By David Chance

Ireland risked a "doom loop" of higher financing costs and loss of access to markets had it not accepted a loan package from the International Monetary Fund, according to the Irish central bank governor during the crisis years.

In November 2010, the European Commission, European Central Bank and IMF agreed to provide US$67.5bn in loans in exchange for deep public spending cuts to stabilise the country's finances.

Patrick Honohan told the IMF's in-house magazine that the loan was the Republic's best option at the time. "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."

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 Fund emerged largely unscathed, despite signing up for the same policies as the ECB and the Commission at the time.

Mr Honohan said: "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'.

"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."

Belfast Telegraph