It’s not the biggest deal in the world, but since I mentioned it once before it’s worth noting that Kevin O’Rourke’s dispatch from Dublin indicates that the IMF has abandoned its austerity-loving ways, but the European Central Bank is insisting that the people of Ireland indenture themselves to various banks:
The finger of blame was clearly pointed by the Minister of Finance, Brian Lenihan, and several of his colleagues: it was the European Central Bank and the Commission who had vetoed the proposal to force some of the bank losses back onto the bondholders. This interpretation is generally accepted in Dublin, although many observers also blame the Irish negotiating team for caving much too easily into pressure from Brussels and Frankfurt. The implication is that the IMF were the good guys: an unusual position for them to find themselves in, perhaps, and one with political implications in a country whose relationship with the European Union has been uneasy in recent years, and which has conserved close ties with the United States. On Monday night, an opposition spokesman made it clear that he would be much happier negotiating with the IMF, who are reasonable people, than with our European partners. The fallout from this will be toxic.
There are a bunch of reasons for this, but the key one is that if Irish taxpayers don’t fully repay the debts of Irish banks, then that’s going to leave some of the European banks who lent them money undercapitalized and in need of a bailout from taxpayers in the European “core.” The austerity package is a way of trying to make sure the losses fall exclusively on Irish taxpayers, though realistically I can’t imagine this deal being remotely sustainable.