UCD economics professor, Morgan Kelly’s article in the Irish Times last month appeared to reveal for the first time that a hitherto unknown player in Irish economic affairs, US Treasury Secretary Timothy Geithner had played a pivotal role in the IMF/EU bailout negotiations last November 2010. According to Morgan Kelly “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 wasUK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent ofUS soft power, and in who our friends really are”
This came as a major revelation. And since the publication of that article, Taoiseach Enda Kenny came under pressure to discuss the matter with President Obama on his whistle-stop visit later in May, and yesterday Tanaiste Eamon Gilmore who is in Tanzania and met there with US Secretary of State, Hilary Clinton, was asked if he had brought up the “matter” with her.
But what “matter”? I suppose we want to know why someone from the US would interfere in a bailout for Ireland. If that is what we want to know then Wikileaks has already provided the answer apparently. In their release of US State Department cables, there is one which reportedly seems to explain exactly why the US had a keen interest in bondholders in Irish banks being repaid : Secretary Geithner was concerned that if Ireland refused to repay bank bondholders then, in the words of Britain’s Telegraph “that could have spread contagion to the entire European system, to which American-backed “credit default swaps” were exposed to the tune of €120bn” (Wikileaks appears not to have published any cables beyond February 2010 on its website, and presumably this cable from Secretary Geithner is dated towards the end of the 2010, so an attempt will be made with the Telegraph to get the source cable and this post will be updated with any response).
So there is probably little point in badgering our politicians to raise this matter with theUS, in the sense we seem to know why the US adopted their stance. The US is the main financial supporter of the IMF of course, so its opinion is not detached from the bailout deal. That said, it seems to be the case that the IMF is supportive of “burden-sharing” which is interpreted here to mean that Ireland does not 100% shoulder the burden of repaying bondholders in private banks.
So why do we need raise the matter with the US ? Well, Central Bank of Ireland governor, Patrick Honohan said on TV on Friday last (Vincent Browne show, transcript here) “I think this is a matter that remains part of current policy discussion” and it seemed that he was talking about the apparent commitment not to burn senior unguaranteed bondholders. So if we are trying to counter the “influence” (a word used in a dark context in the same interview) of others which seems to be the only reason the State is repaying private bank bondholder debt, then it might be helpful to understand their position. And that would indeed seem urgent, and worth badgering politicians (and perhaps even Central Bank and National Treasury Management Agency personnel) for.
Well timed, the Minister for Finance is in the US meeting Timothy Geithner this week.
It might be “soft power” but it a rather insidious, and by the time it trickles down to the bottom line, which is, no money for cancer screening or smear tests it is no longer soft but very painful indeed and even fatal for some.
Obama, knocking down pints in Moneygall, might be good for Irish tourism but keeping Geitner from interfering in European politics so that American financial institutions do not have to pay out on insurance policies for which they have been well paid, is another matter. They are charging premiums that are supposed to reflect risk of default then when these risks become somewhat real, someone in AIG or similar simply rings their man Mr. Geither.
Underpinning our MOU is a plan, that plan is supposed to be that Ireland will go back to the markets next year. However, as burden sharing is being torpedoed by our own ECB under the toxic influence of Mr. Geitner. Why should Ireland have to stick to its side of the bargain if the goalpost are moved further and further away. Mr. Geitner must be biting his nails on the Greece situation because even a “soft default” there may cause the rating agencies to declare a default event has occurred.
I’ve no problem with other countries/institutions wanting to keep snr bondholders intact. I do have a problem with being given the bill. Did any Irish officials (strongly) suggest that they pick up the tab or did we get something in exchange?
It’s the freaking Illuminati! This game is much bigger then a couple of billion here or there. They are making a play for world domination and the longer we continue to appease them the easier it will be for them to put the rest of there dastardly plans into action. The New World Order by hook or by crook.
Have a look at the context of the Telegraph piece again. It seems to be clearly referring to the US / Geithner pressurising the Irish government “to underwrite the debt” because they feared “an Irish bank debt default,” during the period of the Banking Guarantee not the IMF negotiations.(though we know from Morgan Kelly this happened again in 2010) So the relevant cable should be from 2008. I had a look for it yesterday or any other mention of the US interference in the Guarantee and can’t find anything, so could be the Telegraph have it wrong. Would explain an awful lot though if true. Perhaps Anglo was systemic after all, just not to us.
It is becoming clear that contagion was not Geithner’s primary concern…. it’s the IMF’s job to worry about contagion too and they took a different position. He was supporting the European position quid pro quo. It was an easy decision but the US stood to lose too… but not excessively so.
@Michael, why do you say “it is becoming clear that contagion was not Geithner’s primary concern” The claim is that the US was concerned that it might be exposed to €120bn of insurance payouts if there was default on bonds in Ireland which led to contagion in Europe. Why would you say that wasn’t Timothy Geithner’s primary concern? Do you have anything to back up your views?
This story is bunk and a waste of time. First of all, the Treasury Dept doesn’t produce cables. That’s the State Depart and they wouldn’t be privy to any communication with the IMF. So you’re not going to find anything on wikileaks. Second, this discussion presumes that the IMF could have rolled the ECB and the European Commission, who were adamantly opposed and were responsible for the European portion of the program and two-thirds of the fuding. The last I checked total EU shareholdings in the IMF are a bit larger than the U.S. How much luck are the mighty Germans having in rolling the ECB on the Greece issue? Lastly, if you think you need to go back as far as 2008, then you’re forgetting that the U.S. had much bigger concerns than Ireland and Anglo Irish at the time. The actual systemic concern then was the collapse of the U.S. financial system which was a bit more systemic than Anglo Irish.
@PDR Vet, the story is based on reporting in Britain’s Telegraph newspaper, which is pretty reputable and reliable. It hasn’t responded to a request from here for further details and what was sought was the actual cable. The Wikileaks site itself is a nightmare to search and seems haphazard in how it posts things – we had “revelations” reported in the Irish Independent over two weeks ago and the related cables are still not available on Wikileaks. So I haven’t see the precise cable. But it is certainly possible that there might be a State Department cable indicating the US stance on Ireland’s financial crisis.
So I would take issue with you saying there won’t be anything on Wikileaks. I would also take issue with this Ireland’s crisis not being a State Department issue – plainly it’s a big department and if you look at the cables originating in Dublin you will see quite a lot of insignificant chatter, the financial crisis here wasn’t insignificant. Your point about the US being a smaller contributor to the IMF than all the EU countries is well made.
I would add that what happens to Greece will be a much better indicator of Ireland’s options for burdensharing. In this context, maybe Germany is Ireland’s best friend. If Germany gets its way, then at least senior bondholders could be forced to accept a 7-year maturity extension.
“Burning the bondholders” is a threat by Noonan, albeit, an empty one in order to get a better interest rate from IMF, whether or not it will work , remains to be seen…
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