Larry Summers Comments on Current Irish Interest Rates

19 July 2011 - Which Way to Pay

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Larry Summers Comments on Current Irish Interest Rates

Larry Summers, known for being an instrumental economic advisor to President Barack Obama as well as treasury secretary under Bill Clinton, has likened Irish interest rates to reparations faced by Germany after to World War One. The US economist commented that the rates charged by the “official sector” (referring to the EU and IMF) were comparable to those imposed upon Germany post WW1 and documented by the then economist John Maynard Keynes.

This commentary gives a boost to Ireland’s attempts to get a reduction on the interest rates associated with its bailout loans. It comes as welcome news given the approaching European council summit on Thursday. The Government will hope for a deal at the summit which could involve a wider European arrangement over Irish debt.

In Mr Summers essay published in yesterday’s Financial Times, he comments: "Meeting debt burdens at rates currently charged by the official sector -- let alone the private sector -- would involve burdens on Greece, Ireland and Portugal comparable to the reparations burdens Keynes warned about''.

Mr Summers also furthered his comments regarding bondholders, for which his opinions have been at the forefront of the economic debate, especially in Greece. It is his opinion that bondholders should take hits to allow stabilisation of debt levels in Greece. In particular this should reduced interest payments on bonds and longer maturities, as well as bonds being bought back onto the open market at discounted prices.

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