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[File photo] Niall Carson/PA Wire
The IMF's Ajai Chopra
# IMF
IMF's Chopra says link between state and banks led to Ireland's 'crippling downward spiral'
Ajai Chopra was in Kenmare in Kerry to deliver a speech on the financial stability of the EU.
AJAI CHOPRA, the IMF’s European deputy director, has told a conference in Kerry that the most damaging factor leading to the eurozone debt crisis has been the “deep intertwining between sovereigns and domestic banks’ balance sheets”.
Chopra was delivering a speech entitled ‘Strengthening the Financial Stability Framework of the EU’ at the 2011 Economic Workshop in Kenmare.
He said that the “vicious feedback loops” as a result of links between states and banks “that can lead to a crippling downward spiral are painfully evident here in Ireland”.
Chopra has also called for an EU-wide deposit insurance scheme, and more coordinated regulation of the banks. He recommended the appointment of a European Resolution Authority in order to break the link between the balance sheet of the banks and the balance sheet of the state, and that when a bank fails, the cost should be borne by an EU-wide resolution fund.
Chopra said that losses should be borne first by “shareholders and holders of equity-like instruments, and second by uninsured creditors, including senior creditors”.
Referring to Ireland’s unemployment rate Chopra said that the country would not be able to “pop the campagne” until the rate starts to come down, even if Ireland has started to get a handle on its banking problems.
Read Ajai Chopra’s entire speech to the 2011 Economic Workshop in Kenmare
