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Ireland’s Bailout

- November 24, 2010

In view of “Ireland’s recent decision to apply for a financial rescue package”:http://www.nytimes.com/2010/11/22/business/global/22debt.html?_r=1&scp=2&sq=Ireland&st=cse, I asked “James Vreeland”:http://www9.georgetown.edu/faculty/jrv24/ for his thoughts concerning the IMF involvement in the package. His response:

The reason for the IMF to be involved in the bailout is the institution of
conditionality
.

Between the United Kingdom and the eurozone, they could cover the 100 million euros to do the bail out. What the European Union lacks is an institutionalized mechanism of getting policy change in return for the loan. Some actors – notably in Germany – continue to worry about moral hazard, so they actually want this bailout to come with painful strings. But imposing strings in an ad hoc manner would be really ugly. There are a lot of folks in Ireland who were not so keen on joining the eurozone to begin with, so there is going to be a backlash in popular sentiment for Europe in Ireland. By bringing in the IMF to crack the whip, Germany, the United Kingdom, and the rest of Europe can allow the Fund to do the dirty work. It will be the IMF that officially monitors the Irish government and deems whether its fiscal adjustment is sufficient to warrant continued disbursements of the loan package. While the Managing Director of the IMF, Dominique Strauss-Kahn, may come from the Socialist Party of France and talk a good pro-stimulus game, in the end, the IMF Executive Board will have the final say. And when it comes to Europe, the Board is likely to take its lead from prominent members like Germany, the United Kingdom, and France. Behind the closed doors of the IMF Executive Board, these countries can make the tough calls for austerity in Ireland.

What makes the case of Ireland particularly interesting is its long history of colonialism, only thrown off during the 20th century. Also interesting is that Ireland is one of the few countries in the world that has never previously participated in a conditioned IMF arrangement. The
sovereignty costs
will thus be all the higher in the eyes of the citizens of Ireland. The incumbent government will surely pay a price. Usually governments try to wait until after elections to enter into IMF austerity programs, but time has run out for the Cowen government.

Still, any sacrifice of sovereignty that Ireland appears to make to the IMF is really a result of the sovereignty they surrendered when they joined the eurozone.

_You can find more of Vreeland’s observations on international political economy at his blog_ “The Vreelander”:http://vreelander.blogspot.com/.