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European Parliament Committee raises serious questions concerning Troika's engagement with Ireland's bailout
Social Justice Ireland welcomes the fact that the European Parliament's Committee on Economic and Monetary Affairs:
- Considers that too little attention has been given to alleviating the negative economic and social impact of adjustment strategies in the Bailout countries such as Ireland. and
- That too often the one-size fits all approach taken to crisis management by the Troika did not fully consider the balance in the economic and social impact of the prescribed policy measures.
These were two key points that had been presented regularly to the Troika by Social Justice Ireland in our meetings during the bailout years.
They now form part of a report on the Troika's engagement with the four EU countries who were forced into bailouts: Ireland, Portugal, Greece and Cyprus prepared by the European Parliament Committee on Economic and Monetary Affairs and approved on Monday, February 24, 2014.
The report concludes that EU/ECB/IMF "Troika" helped four EU countries out of the crisis and prevented it from getting worse. But flaws in the way the Troika worked hindered national "ownership" of economic reforms, and compromised transparency and accountability, according to the European Parliament’s Committee on Economic and Monetary Affairs Committee.
The Committee's conclusions will be of special interest to Ireland. Among these conclusions the report:
- Regrets the burden has not been shared among all who acted irresponsibly and that the protection of bond holders was seen as an EU necessity in the interest of financial stability.
- Asks the European Council to activate the framework it decided on the treatment of legacy assets so as to break-down the vicious circle between sovereigns and the banks and alleviate the public debt burden in Ireland, Greece, Portugal and Cyprus.
- Calls for the full implementation of the June 2012 commitment by EU leaders to break the vicious circle between banks and sovereigns and to further examine the situation of the Irish financial sector in a manner that substantially alleviates Ireland's heavy burden of bank debt;
- Urges the Eurogroup to deliver on its commitment to examine the situation of the Irish financial sector with the view of further improving the sustainability of the adjustment in Ireland, and,
- Urges the Eurogroup to make good on the commitment to Ireland to deal with this bank debt burden;
- Argues that special consideration should be made in the application of the Stability and Growth Pact for relevant legacy debt that is perceived in Ireland as unfair and burdening the country under the flexibility provisions of the reformed pact;
- Argues that in the longer term the distribution of the costs should reflect distribution of the protected bond holders;
- Takes note of the Irish authorities' demand for a transfer of a share of public debt corresponding to the cost of the bail out of the financial sector to the ESM;
The report on the committee's inquiry into the workings of the Troika, drafted by Othmar Karas (EPP, AT) and Liem Hoang-Ngoc (S&D, FR), was approved by 31 votes to 10, with 2 abstentions on Monday February 24, 2014. It highlights many weaknesses and recommends urgent improvements. It also delves into the individual cases of each of the four "programme countries" (Greece, Ireland, Portugal, and Cyprus).
The report acknowledges that the immediate aim of avoiding disorderly defaults was achieved and that the challenges that the Troika was set up to tackle were "immense". It also deplores the fact that EU institutions were made a scapegoat for the adverse effects of reforms, even though it is finance ministers who should bear political responsibility for them.
A weakly-built system
The findings focus on problems internal to the Troika. "The three independent institutions of the Troika had an uneven distribution of responsibility between them, coupled with differing mandates, as well as negotiation and decision-making structures with different levels of accountability, all resulting in a lack of appropriate scrutiny and democratic accountability as a whole", says the text.
National parliaments were too often left out of the equation. "When consulted, national parliaments were faced with the choice between eventually defaulting on their debt or accepting memoranda of understanding negotiated between the Troika and national authorities", says the text, adding that European guidelines should be established to ensure appropriate democratic control of such measures..
The Troika system is also criticised for taking a "one-size fits all" approach, without due consideration for differing circumstances on the ground, and its inability to adapt policy prescriptions when these prove ineffective or based on wrong assumptions, as happened when forecast growth did not materialise and fiscal multipliers proved greater than anticipated.
EU finance ministers, particularly in the Eurogroup, are also criticised for failing to give clear and consistent political pointers to the Commission as regards the aims sought in return for financial assistance. In its de facto capacity as final decision-taker on financial assistance and conditionality, the Eurogroup is urged to shoulder its political responsibility for the bailout programmes.
As a first step, the report advocates laying down clear, transparent and binding rules of procedure for the interaction of the Troika institutions and regulating the allocation of tasks between them. An improved communication strategy is also an "utmost priority", says the text.