Sharing the Burden of Adjustment
This post was written by Philip Lane
From the IMF report:
Sharing the burden of adjustment: the authorities’ commitment and performance to date give confidence that fiscal targets will be met, and the authorities are working to develop a medium-term fiscal framework and supportive fiscal institutions. It should be recognized, however, that there is a strong sense that burden-sharing between taxpayers and creditors for the cost of supporting the banks has been unfair. In this respect, the authorities have reiterated their absolute commitment to servicing sovereign debt and the debt of the pillar banks (AIB/EBS and BoI) that will meet the banking needs of the Irish economy. Regarding the banks in resolution (Anglo and INBS)—which have received €34.7 billion (22 percent of GDP) in capital from the government—the authorities have stated that any burden sharing with holders of unsecured and unguaranteed senior debt (about €31⁄2 billion remaining) would be undertaken in consultation with the European authorities. Staff stressed that to effectively mitigate contagion risks such burden sharing would need a robust legal and institutional framework that strikes a reasonable balance between creditor safeguards and flexibility.