Portrait of a man who opposed haircuts

The generally accepted narrative of the €85 billion Irish bailout holds the International Monetary Fund proposed that bank bondholders should be bailed in as part of the rescue. The Government was said to be delighted at the prospect, as it would greatly reduce the burden that was going to be put on the taxpayer.

However, the story goes, that Tim Geithner, the US treasury secretary at the time scuppered the move because of concerns for the stability of the wider banking system. Geithner has never commented directly on this assertion.

Anyone hoping for clarity in his recently published book, Stress Test, will be disappointed but may still find their appetite whetted. He does not discuss Ireland directly but he does admit that he warned the Europeans that making haircuts "a necessary condition" of rescues was a bad idea.

It would “be like announcing that no loans to the weaker European banks or governments were safe”.

“‘You just cannot afford all this loose talk about haircuts,’ I said.’’

We are left to draw our own conclusions as to whether such friendly advice from the US treasury secretary was tantamount to a veto.

To Geithner’s credit, he does say he was not opposed to haircuts in principle and thought that weaker government and bank debt could be restructured at a later date.

His objection to doing it at the time was that it could not be done without having some sort of backstop or firewall to prevent contagion, and one did not exist.

The Americans, he points out, had learnt this the hard way when they let Lehman collapse triggering panic in the global markets.