Saturday, November 23, 2013

22/11/2013: 'Clean exit': spin vs non-spin

Yesterday, I tweeted in response to the quote by An Taoiseach Enda Kenny concerning Ireland's 'exit' from the bailout as follows:

'Clean'? 'Break'? 'Right'? 'Course'? Is he randomising words off refrigerator magnets? RT @harrymcgee: Making ‘clean break’ from Troika was right course, Kenny | Cause, you know - it is neither a break (2-pack) nor 'clean' (debt still there), nor 'right' (retro debt relief not in place), nor a 'course' (cause we didn't have a choice - the money run out & the pot is empty).

The quote contained in this Irish Times article: was as follows:
"Taoiseach Enda Kenny has asserted that the Government took the right course of action in making a ‘clean break’ from the Troika despite its own independent economic advisers recommending the State should have accepted a precautionary line of credit."

Let me explain why I have take the statement to task.

Word 'clean' implies that we have severed whatever attachments to the bailout we had in exiting the bailout. Alas, there were two such attachments to severe:

  1. Troika oversight. This still remains, albeit in slightly altered form: Note that, per my analysis here:, our exit from oversight can be interpreted as ejecting the more positive side of the Troika and retaining the oversight by the less positive (from our interest perspective) members. Further note, Minister for Finance explicitly admitted that there was no exit from the oversight.
  2. Financial ties to the bailout. These ties were not even reduced, let alone cut, since the entire debt we owe the Troika is still outstanding to the Troika.
Word 'break' implies an act of breaking free from something - the act of the doer. Ireland did not 'break' away from the bailout, but rather we have run out of the bailout terms. We completed drawing down the loans available per bailout. We completed the process on time (without overruns) and without requesting another bailout. But we did not 'break' from the bailout.

Thus, one cannot claim that we made a 'clean break' from the bailout, but rather that we have moved to the second stage of the bailout: paying down the loans.

Was the 'exit' a right choice? Time will tell. Fiscal Council thinks (as I do) that on balance of things, we should have secured a precautionary line of credit. Moreover, we can now clearly kiss goodbye any chance of a retrospective debt deal on legacy banks debts. Not being within a bailout disallows us to extend an argument of hardship arising from these debts, and by removing the IMF from the oversight process, we have now removed the strongest advocate of such a deal we had, after the Ballyhea-Charleville group of protesters and other similar groups. Note: Irish Government ranks, in my view, as a distant third force in asking for such a deal.

Thus one cannot argue that the 'exit' was a 'right choice' as it clearly fails to achieve the objectives that would have made it 'right'.

Lastly, the issue of the word 'course'. Course implies an option of direction undertaken. Ireland had no such option. We have completed the first stage of the bailout - conditional loans disbursement. Full stop. Altering this 'course' of completing the first stage would have required us negotiating a new bailout - something that was clearly not feasible, given the problems Germany and rest of the EU have encountered in Greece and given the fact that the IMF is desperate to stop lending in the Euro area. The entire process of Euro area bailouts has cost IMF hugely in terms of reputational costs and risks. The Fund came to severe blows with the EU and ECB over the policies and structures of the bailouts and it has run out of the road in extending more funding to the Euro area states beyond the funds agreed. In short, neither Germans, nor the IMF were looking forward to lending us any more cash should we request another bailout. Which means there was no 'course' nor a choice of action to take.

The good news, we do not need another bailout. The Irish people and the Government deserve a credit on this. The bad news, we neither exited the bailout, nor achieved a clean separation from the Troika, nor pursued a correct path of action on structuring our completion of stage 1 of the bailout. The Irish people certainly are not to be blamed for these. Which leaves only one question open: is our Government to be blamed?

I neither desire to answer the last question, nor to deal with what the potential answer might be.

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