Indian economist Mody plays on bond writedown stances

The Government won't have welcomed the latest intervention by Ashoka Mody, the Indian economist who was formerly a senior IMF staffer dealing with Ireland.

Mody, in an interview with Newstalk, accused the Government of taking too soft a line in talks with the EU-IMF troika shortly after its election in the spring of 2011. By that time, Mody had left the IMF, though Minister for Finance Michael Noonan pointed out that he could have taken a chance to help Ireland when he was here, but didn't do so.

In the run up to the entry to bail-out, when Mody was heavily involved in IMF dealings with Ireland, it did appear that the IMF supported the call for some writedown of unguaranteed senior bondholders in the banks, of which there was probably around €18 billion still outstanding at the time. This was ruled out by the EU and the ECB, which were keen to keep borrowing markets for banks open, with intervention also from the US.

It is arguable how much might have been secured at the time, given that many of the bonds were in AIB and Bank of Ireland, which the Government was trying to save. However as AJ Chopra, who led much of the IMF work here conceded in late 2013, it was a mistake that it did not happen.

After Mody left the IMF, the new Government was elected, and its call for a senior bond writedown was again rejected. It is still a toxic political issue here and plays into the debate on the Government’s handling of the current Greek controversy, which is looking ever more difficult after Monday’s meeting of euro zone finance ministers collapsed.

Sinn Féin was quick to respond to Mody, calling on the Government to support the Greek case.

The Government's stance on Greece looks to have been based in large part on the view that Greece is not going to get a significant deal from Europe on its debt. There is still a way to go on this one, but after Monday's meeting there is no reason to change that view.Two years after rejecting the Irish government, Europe might be prepared to go some way to meet the Greeks, but the middle ground on this one remains far from clear.