Writing in the Sunday Independent today, Colm McCarthy characterises the Irish government’s position in the EU-IMF negotiations as follows:
The analogy of a poker game has been invoked, with the Irish negotiators having held, according to economist Antoin Murphy, no more than a pair of twos. In reality they held no cards at all, and could not bluff either. An Irish rejection would have created unwelcome but manageable problems for the eurozone banking system but would have brought immediate financial meltdown in Ireland. The inevitability of the latter is the reason why the bailout providers were in Ireland in the first place.
I’m not sure that I agree with the asymmetry that Colm invokes here: That a meltdown of the Irish banking system would have been a disaster for us but merely an “unwelcome but manageable” problem for the rest of the Eurozone.
An Irish banking system meltdown, complete with senior debt defaults, could have had extremely serious consequences for the rest of the European banking system. If the cavalry had arrived in Ireland but failed to negotiate a deal because of their desire to make the terms too onerous, how could one feel secure about Spanish banks, for instance?
If, as it appears, the Europeans (rather than the IMF) were pushing for faster fiscal adjustment, more intense conditionality, no defaults on senior bonds and a high borrowing rate, rather than have no hand to play at all, the Irish side could still have adopted the Dirty Harry strategy: Go ahead punk, make my day.