Lagarde praises State’s changes to bankruptcy laws

International Monetary Fund managing director Christine Lagarde has praised Ireland's new bankruptcy laws, arguing that they are a strong example of how countries should seek to reduce private and household debt.

Addressing a briefing at the European Policy Centre in Brussels yesterday, Ms Lagarde set out three main ways in which economic growth could be boosted: by enhancing the institutional frameworks of monetary union; reforming production systems and the labour market; and reducing debt.

Debt overhang, particularly in the household and corporate sectors, was acting as a major brake on growth, she said, adding that "the restructuring of bankruptcy laws in Ireland is a good example of what can be done".

German finance minister Wolfgang Schäuble, who also attended the briefing held to mark the publication of a new IMF publication on jobs and growth, said debt reduction had been a key to Germany’s return to growth, though he warned against “endless regulation and bureaucracy” coming from Brussels.

Single Resolution Mechanism
Mr Schäuble was speaking ahead of yesterday's Ecofin meeting of finance ministers, at which ministers were debriefed by the euro group on Monday evening's euro group meeting of euro-zone finance ministers.

As discussions about the shape of the Single Resolution Mechanism (SRM) continue in Brussels, it emerged that a German-led group of countries has mooted the possibility of a gradual phasing out of the ESM direct recapitalisation instrument once the €55 billion SRM fund is established. Officials played down the impact of the any insertion of a “review clause”, suggesting it would not have a direct impact on Ireland’s bid for retroactive direct recapitalisation, and had not yet been discussed in earnest.

Ireland is hoping that the ESM direct recapitalisation tool could be used to take a direct stakes in AIB and Bank of Ireland retrospectively, thus relieving the State of some of its investment in the banks.

Speaking yesterday following a meeting of EU finance ministers, EU economics and monetary affairs commissioner Olli Rehn appeared not to rule out the possibility of such a clause, saying he did not comment on speculation.

However, euro group chief Jeroen Dijsselbloem earlier suggested such a move would be contrary to what finance ministers had agreed last year.

“In the June agreement on what the fund would look like, we didn’t agree it would be temporary,” he said.

“I do think that when we get the banks in order and the fund is filled and operational, the use of the direct recap will be limited even further. In that sense it could turn out to be a temporary instrument in practice. But that is not what we agreed on. And . . . I’d wish to keep all parties to the agreements we have made.”