Mr. Ajai Chopra:

Thank you, Chairman. Good morning, members of the committee. I’ve been quite fulsome in my written statement. In the interest of brevity, I will make just a few points to provide perspective. First, I reiterate that I no longer work for the IMF and hence speak in a personal capacity. I do not represent the IMF at this hearing. I also remain bound by the IMF’s rules on confidentiality. Second, a few words about the counterparts I worked with on the external assistance programme. On the Irish side, the counterparts at both the technocratic and political level were uniformly superb. They were knowledgeable, dedicated, smart, funny and committed to tackling Ireland’s difficult situation. There are too many individuals for me to mention by name and it’s invidious to single out just a few so I won’t do so. These Irish public servants were true heroes in how they dealt with the crisis in Ireland and Europe. The nation should be proud of them and they should be proud of what they achieved under difficult circumstances.

Teams from Europe and partner institutions, namely, the European Commission and the European Central Bank were also high calibre. They came to Ireland with the genuine intention to be helpful and supportive within the constraints imposed by their institutional rules and structures. Staff from the IMF, the Commission and the ECB established an effective and collegial working relationship although this required a big investment of time and effort, including agreeing first time positions among external partners before discussing them with the Irish authorities. I would be amiss if I did not also pay tribute to the marvellous IMF teams I had the good fortune to lead. I may have become the public face of the EU-IMF programme - certainly not by design and I guess today’s appearance before this committee ironically perpetuates that – but this was a team effort, with a fabulous group of IMF professionals backing me up all the time.

Third, I now turn to the central theme put to me by the committee, namely, the crisis response and the role of external partners. As my statement covers specifics on this matter, I limit myself now to the broader point that IMF support for a member of the monetary union introduces an unusual set of challenges. This has a number of dimensions and I’ll touch on only a couple of them.

One dimension is divergent interests of the IMF and European institutions where objectives may not necessarily always be aligned. The IMF tends to focus primarily on supporting its member country, encouraging policies that are suitable for the country that at the same time do not undermine global stability or increase global imbalances. The EC and ECB often put euro area-wide rules and concerns above what is appropriate for the individual member. The obvious example is the issue of burden-sharing with senior unsecured bondholders, where European institutions focused on wider euro area concerns even if this resulted in a higher burden for Irish taxpayers and higher Irish public debt.

The issue of ECB liquidity support, a crucial complement to bank recapitalisation and restructuring plans, is another example. No doubt the ECB was an enormous creditor to Ireland through its liquidity support. Indeed, at the time no other euro area country received as much support from the euro system relative to the size of the economy. But this support appeared to be only grudgingly provided and its availability and stability did not seem assured. As I pointed out in my written statement, although critical to the programme there was no ex antecommitment of liquidity support from the ECB. More supportive public statements by the ECB about ensuring the provision and stability of liquidity support, as needed, would have helped restore confidence in the banking system.

Another dimension is the importance of greater euro area solidarity to help address adverse feedback loops between banks, the sovereign and the real economy, which were terribly damaging for Ireland and other countries. Europe’s decision to require each country to solve its own banking problems individually rather than in a mutualised manner worsened the crisis.

Even the relatively modest step of euro area bank recapitalisation instrument, despite being on the books, has hit a stone wall. Similarly, low-risk approaches to mobilise European support such as credit enhancement schemes to lower the funding costs of banks' tracker mortgages would have helped bolster bank profitability and simultaneously support lending capacity, but these did not get much traction. Such additional support for a country such as Ireland would have had a positive pay-off, making it an investment worth undertaking.

The broader point is that Europe does not seem ready to create a genuine fiscal and financial union, but without such solidarity, the monetary union will remain fragile. Common regulation and supervision, including through the implementation of the Single Supervisory Mechanism, is now well advanced and is a good thing. It should help address regulatory capture, which was an issue in Ireland before the crisis.

A legal framework for common bank resolution is in place but its funding is woefully inadequate. However, common deposit insurance is a distant prospect at this stage, but without common deposit insurance, there will be no homogeneity of bank deposits across the euro area and no pan-European financial system. Moreover, the threat of euro exit has been used as a negotiating tool, which changes the monetary union into a system of fixed exchange rates, forever changing the nature of the euro.

I do not want to end my opening statement on this sombre note about Europe's fragile future unless radical changes are made in the functioning of the monetary union. I'll, therefore, end on a different note. Ireland's successful completion of its external assistance programme was a significant achievement and deserves much praise. Yes, some crisis legacies still loom large and there are risks but, as I said in my written statement, the economy is growing at a rapid clip and is creating jobs, the banking sector is healing, the fiscal deficit is small and public debt is declining. A key reason for this success is country ownership of the programme. The policy package under the external assistance programme was home-grown, designed by the Irish themselves. Ireland had an excellent record of policy implementation and compliance with the conditions set under the programme. There were 12 quarterly reviews of the programme, and each one was completed like clockwork. This is rare and is no small accomplishment. The Irish authorities also persisted, despite uncertainty and some dark moments. Social cohesion was maintained. These are all essential ingredients to make the external assistance programme a success. Thank you.