Austerity Was A Mistake Says Former IMF Mission Chief

File:Protest against bailout of Anglo Irish Bank.jpg

A reliance on austerity as a measure of combating the economic downturn is actually counter-productive, said Professor Ashoka Mody, a former International Monetary Fund (IMF) mission chief for Germany and Ireland.

Speaking on RTE’s Morning Ireland, Professor Mody said that the Troika had other options besides the imposition of austerity, and added that the bondholders could have been forced to bear some of the burden. “We are seeing a belated recognition of the fact that the constraint imposed only by austerity was untenable,” he said on the programme. “Clearly the experience, if experience was needed, has demonstrated that reliance on austerity is counterproductive.” The option of burning the bondholders wasn’t considered at the time, because the government was concerned about causing further financial instability.

The problem, Professor Mody said, is that the austerity path Europe is taking is counter-productive to the need for growth, a growth which will get economies back on track, and this begin to tackle their massive burdens of debt. “Given that Europe is dragging itself down the austerity process, some of the growth projections are not likely to be meet. In that case these debt burdens will remain higher for longer than we currently think. Something has to give,” he said. Professor Mody also said during the interview that not burning the bondholders was a mistake, despite the fears of the consequences of a default on the part of the state. Sovereign defaulting is not always as dire as one may think; the process can actually result in the writing off of some substantial debt, or result in debt restructuring.

Professor Mody also noted that Ireland’s growth prospects are tied closely to that of the world, rather than our own efforts. “There is not a lot Ireland can do, in my view, to engineer its own growth prospects,” he said.

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