Speaking on Morning Ireland, Mr Mody said that the Troika had other choices apart from austerity, adding that bondholders could have been brought in to bear some of the cost of the ”sovereign distress’.
“We are seeing a belated recognition of the fact that the constraint imposed only by austerity was untenable, “Clearly the experience, if experience was needed, has demonstrated that reliance on austerity is counterproductive,” he added.
He referred to the bailout negotiations between the then Government and the Troika of lenders – the IMF, the EU and the ECB.
He said that there were three choices: One, was to bring in the bondholders – either private holders of bank debt or sovereign bond holders – and they would bear some of the distress. Two, was to off to Ireland “extremely concessional official financing. And a third choice was to impose austerity on Ireland.
“We chose option three and the decision then was that the entire reliance would be on austerity,” he said.
“And clearly the experience, if experience was needed, has demonstrated that reliance on austerity is counter-productive and since there was no pain demanded from private bondholders the only option now is to make the official financing easier and more affordable for Ireland,” he said.
He said that we are now seeing a belated recognition of the fact that the constraints imposed by the only austerity option was untenable,” he added.
He said that the whole construct for Ireland’s bailout “was wrong”.
He added that the view then and now was that the bank debt, which has become “quasi-sovereign debt” needs to be repaid or financial instability will follow.
Mr Mody went on to say that the construct of Ireland and Portugal’s bailouts means that reliance is put on growth and that some of the growth projections have proven to be over-ambitious given the downturn in European and world economic conditions with “Europe dragging itself down by austerity policies”.
He said that the policy of not “burning bondholders” was a “mistake”.
He said that an Irish default could have been managed and controlled, citing historical precedents. Source RTE News