of the programme. if the programme did fail to restore market confidence, that would have to be dealt with when the time came : holding out for better terms at the outset would have been self - defeating. as the programme proceeded, the severity of the three risk factors that i mentioned dissipated. the interest rate was sharply reduced ; the tail risk on bank losses did not materialise as much as many feared, and the additional cost of rapid deleveraging turned out to be less severe than it might have been. the two successive irish governments ’ firm adherence to the programmed fiscal adjustment was a key element : without it, external official and market confidence in the policy path would not have been restored. ( it is worth recalling that fiscal adjustment was already well under way for more than a couple of years when the programme began. ) close attention to the details of implementation and a solid record of working closely with troika officials to tweak programme conditionality in order to avoid self - defeating actions also helped in delivering this outcome. ( examples relating to the banking sector included small but important operational adjustments to the deleveraging path and the timing of stress tests ). while the programme ’ s aggregate story thus ends well, it is instructive to consider in some detail how it might have been better designed. i will focus on some of the financial aspects, which, after the fiscal component, were indeed the programme ’ s centre - piece. the bank bond issue much has been made of the issue of “ burning bondholders ”, and rightly so. just as the scope of the two - year blanket guarantee of september 2008 had been criticised, the idea that the newly - unguaranteed remaining bondholders in the failed banks anglo and inbs might now receive government largesse was rightly repugnant to many observers at home and abroad. the irish government was very interested in seeking some form of bail - in to undo some of the damage caused by the original guarantee, especially if done as part of an international assistance programme. it was unclear how much burden - sharing could in practice be this is especially true, given the prevailing reluctance in official europe to rely to a greater extent on keynesian reasoning which, in the interests of maintaining higher levels of economic activity and employment, might have tolerated a more gradual fiscal correction path in the post - crisis adjustment phase. bis central bankers ’ speeches achieved for the going - concern banks ( discussions in the corridors around during the negotiations included suggestions that some form of

in that paper is why external consultants such as blackrock had not been used in the 2010 capital adequacy exercise. the answer to that is that several high profile international firms had indeed been engaged by the irish authorities during 2008 and 2009 with a view to finding out how big the capital hole was. each of these firms had proposed what soon proved to be absurdly low numbers, an experience which encouraged the more home - grown approach of march 2010. actually, as noted in honohan ( 2012 ) much of the additional capital called - for in the march 2011 exercise relates to the higher capital ratios and projected added costs of the faster deleveraging required by the programme. in the event, the deleveraging was achieved with lower costs than projected at march 2011. as it had already been doing for over two years before the programme. bis central bankers ’ speeches shared the view that this debt overhang was holding back the recovery and needed to be dealt with quickly. why did that not happen? there is room for different views as to why this situation has persisted. i think that both the troika and the irish officials began with the presumption that, once sufficiently capitalised, and when appropriate amendments had been made to the legislation on insolvency and on repossession of the security on defaulted mortgages, the lenders would proceed speedily to deal with the arrears, efficiently making the triage between those loans that should be restructured ( potentially with a sizable npv concession ) and those that needed to be foreclosed on. the programme thus relied mainly on capitalisation and these pieces of legislation. the fact that there were delays in finalising the legislative changes, allowed this belief to persist. by late 2011 however, the central bank realised that most of the banks had not developed sufficiently effective policies or operational capacity to deal with the arrears situation given the still growing number of cases involved. it took more than a year for this challenge to be adequately met. even then, and with the legislation fixed by early 2013, progress has remained slow – and not just because court proceedings entail substantial delays. to be sure, although on the official side there has been consistency in wanting the problem to be addressed quickly, there has also been a wide divergence between those who see the problem as chiefly one to be resolved through repossessions and improved payments discipline, and those who argue for greater use of concessionary restructuring of loans. in my