Bailouts to Ireland, Greece, Portugal and Cyprus prevented disorderly default and the spread of bank-runs to other countries, the European Commission said, as it defended its response to the euro-area debt crisis.
The rescue programmes, with commitments totalling €396 billion since Greece was first bailed out in May 2010, prevented negative economic, financial and social consequences and limited contagion to other nations, the European Union’s executive body said in a report made public yesterday.
"Economic assistance programmes prevented the disorderly default of a member state, avoiding much more severe and abrupt social consequences," the commission said in answers to a questionnaire from the European Parliament. Lawmakers from the 28-nation assembly are inquiring how the troika – the commission, the International Monetary Fund and the European Central Bank – conducted itself during work with the four bailout countries. That includes imposing privatisations and liberalisation, and monitoring them.
Troika efficiency
The troika model "has proved to be very useful for dealing with the challenges facing euro-area programme countries", the commission said. European lawmakers have questioned whether the structure is transparent and accountable.
EU economic and monetary affairs commissioner Olli Rehn will appear before the parliament on January 13th to respond to questions. Former ECB president Jean-Claude Trichet will face lawmakers on January 14th and Klaus Regling, head of the European Stability Mechanismwill participate on January 15th.
Questions asked
The ECB has received the questions and will respond today or tomorrow, a spokesman said. A European Parliament spokesman said it wouldn't provide an assessment of the commission's answers at this stage. The IMF had no immediate comment.
In an interview published by the IMF last month, former mission chief in the Republic Ajai Chopra said it was clear when a government is dealing with a systemic banking crisis, "it needs to come to grips with the situation quickly".
In Ireland, he said, the crisis emerged in 2008 but was not sufficiently addressed until 2011. He also said the Irish bailout has shown it is “unfair” to make taxpayers carry the cost of supporting banks while senior, unguaranteed bondholders get repaid in full.
Mr Chopra said developments after bondholders had been repaid have shown bailing in such creditors “is now becoming more accepted”. Ireland has shown it is best to let governments design the key components of their rescue programmes, according to Mr Chopra. – (Bloomberg)
