Chopra hints that Spain's adversity may be our opportunity

Mon, Apr 23, 2012, 01:00

BUSINESS OPINION:HAS IRELAND’S relentless love-bombing of Ajai Chopra worked? Has the heart of this gnomic bureaucrat been melted by our fabled charm? Will he now pick up the cudgels and do battle on behalf of plucky little Ireland as the Eurocrats seek to squeeze the very blood from our national veins with their demands for relentless, mindless austerity?

Probably not. But the International Monetary Fund’s head of mission to Ireland does seem to be at least a little chuffed with the celebrity status he enjoys here. As Niamh Sweeney reports on page two, he was positively bashful when the issue came up at his briefing on Ireland at last week’s spring meeting of the IMF and World Bank.

More pertinent were his comments to the effect that the IMF is pushing for further European support for Ireland, which was coupled with a succinct analysis of why Ireland is far from out of the woods. If domestic demand does not pick up and exports do not grow strongly, Ireland’s debt is unsustainable, he said.

It is frustrating that Chopra did not feel inclined to expand on what sort of additional measures the IMF might like to see for Ireland. The notion of explicit IMF support for the refinancing of the €31 billion Anglo Irish Bank promissory note was left dangling.

Instead, Chopra resorted to the coded diplomatic language that we have become so familiar with over the last few years, be it from the IMF or any other member of the EU-ECB-IMF troika.

What he said was: “We have been making the case for additional European support that goes beyond the current set-up and I’m sure you’ve seen reports on the press conferences from the last couple of days . . . and one of the things that has been emphasised is that if European facilities had the flexibility to take direct stakes in banks without going through the sovereign – direct equity, direct stakes . . . – this would help break that sovereign-banking loop and could make a world of a difference.”

It would be nice to know what he meant. An educated guess might be that he was saying the IMF is trying to link its continued support for Europe to a change of approach, and that might well have benefits for Ireland.

The first part of this proposition is the main takeaway from last week’s meeting, with US treasury secretary Timothy Geithner making it clear what the US wants to see in return for ponying up its share of the €430 billion boost to the IMF coffers agreed over the weekend.

He wants Europe’s leaders to deploy their “tools and processes creatively, flexibly and aggressively to support countries as they implement reforms and stay ahead of the markets”. If that does not sound like refinancing the Anglo promissory note, then nothing does. Unfortunately, it is unlikely to be what Geithner had in mind.

What worries him and thus the IMF is Spain and possibly Italy. Concerns about Spain are once again in the ascendant and the sort of vicious cycle that saw market confidence evaporate in respect of Ireland cannot be ruled out.

What IMF managing director Christine Lagarde, Geithner and our own Chopra seem to be saying is that a direct rescue of Spain’s banking sector might stave off the need for a rescue of Spain itself. No less than Ireland, Spain does not have the firepower to bail out its banks and make the sort of fiscal adjustment necessary to stabilise its public finances.

The read-across for Ireland from all this is that, if such an approach is adopted for Spain, the case for some sort of direct assistance for the Irish banks is hard to argue against. And then all the ideas that are floating around, from refinancing the promissory notes to warehousing trackers, start to look a lot less fanciful.

The ball is now back in Europe’s court. The vehicle to rescue Spain’s banks is available in the form of the European Financial Stability Facility and its successors. The money is available, but what is missing is the willingness of the Europeans to grasp the opportunity.

The presumption is that nothing much will happen until the ramifications of the French election have played out. And, of course, there is no guarantee that Europe will move in the direction the IMF is pushing it. It is sadly also a fact that the consequences for Ireland will not be a significant consideration.

But if the IMF gets its way, the upside for Ireland is huge. So if you see Ajai on the streets of Dublin this week, don’t forget to smile.