By Michael Breen (17 May, 2011)
An interesting piece of information that was not previously in the public domain surfaced in Morgan Kelly’s now infamous Irish Times article. He stated that:
‘The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.’
Kelly’s statement even prompted a response from a senior US government official. Writing in the Irish Independent, Michael Brennan quotes the official as follows:
‘The ECB and EC were both dead opposed and they are decisive. The US is not a decision maker on European issues,’
With the imminent arrival of Barack Obama, perhaps the media do not want to dwell on this disturbing issue. By suggesting the US government ruined Ireland’s best opportunity to restructure its burgeoning debt, Kelly has cast doubt on the friendship between Ireland and the US. It’s important that this issue isn’t ignored as it may have repercussions for future revisions to the bailout.
Kelly’s main argument is that the US Secretary of the Treasury, Timothy Geithner, is to blame. He suggests that Geithner is ideologically biased towards protecting the financial sector on the taxpayer’s dime. Without Geithner’s decisive intervention, so the argument goes, the IMF’s initial preference for debt-restructuring might have prevailed.
Although the full extent of Geithner’s role in the negotiations is not clear one thing is certain, as a former senior IMF official, Geithner has a deep knowledge of IMF decision-making and international bailout negotiations. He would have been acutely aware of how the private sector can be compelled to restructure debt and provide new loans. This is why it would be all the more disappointing if he did not side with his former colleagues on the issue of the haircut.
Nevertheless, I think it is not appropriate to blame a specific individual when we don’t have all of the facts. And I suspect that even if the US and UK had sided with the IMF’s staff during the negotiations the EC/ECB position would have prevailed.
With the EU authorities providing the lion’s share of the bailout funds, any intervention by the US to block the deal could have seriously disrupted international relations among the world’s major economic powers. It would have implied that the US was attempting to become a decision-maker on European issues. Moreover, it would probably have yielded little as the EU authorities could have walked away from the negotiations and offered funding without IMF involvement.
In summary, Geithner’s alleged actions seem to accord more with US interests and not his personal ideology. If the US was to intervene in European-led bailouts this would surely invite retaliation.
Still, the US could have adopted the allegedUKposition and at least attempt to speak up for the Irish. In fact, in previous high profile bailouts, Germany and the UK have quietly registered their discontent on the sidelines, without preventing the US from dictating terms.
Since President Obama will be visiting Ireland next week, perhaps the government will take the opportunity to ask him whether the US would be willing to support a more generous bailout.