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.