Dr. Donal Donovan:

The IMF, if I may say so, has in general been more open to the concept of restructuring of debt, particularly sovereign debt. Many IMF programmes, which I mentioned in my response to Deputy Higgins earlier, have included this as a very substantial part, as otherwise the numbers will not add up. It is not possible to put the thing together unless creditors take a hit. This is a long-standing feature of IMF programmes.

However, it is not a general principle that always has to apply. One looks at each particular country, because there are costs associated with debt write-downs. Countries' reputations suffer. If one can get away without doing it, it is possibly better. However, if it is inevitable that there is no solution other than including that, the IMF is pragmatic and will say, "Let's do it". It will probably say, "Let's do it sooner rather than later because we are just postponing the inevitable".

I hesitate to speak too much for Europeans but, in various places, I have made the observation that the ECB would have been very reluctant to entertain too much in the line of debt write-downs and restructuring. Why is this? The IMF over 50 years has a lot of experience of what works and does not work. It sees what may have to be done sooner. The ECB is a young institution. It clearly wishes to safeguard its reputation, and having to preside over bank losses or debt write-downs for an institution that is ten years old is not something which would fit too easily with a central bank seeking to enhance its reputation.

The view might also be said by some in Europe who would oppose debt write-downs, at least the ECB, that it is okay for the IMF to say we should probably do this and things will work out better. However, what if the IMF is wrong and the costs associated with this turn out to be much higher than anyone had thought or that the IMF had said might be the case? The IMF people can always get back into their aeroplanes and go back to Washington. However, the ECB is the institution which would have to remain to pick up the pieces if the strategy did not work. For this reason, perhaps there is an element of conservatism on the part of the ECB.