The International Monetary Fund official overseeing Ireland's bailout has blamed policymaking delays and infighting in the European Union _ particularly over whether to make private bondholders share in losses _ for needlessly worsening the eurozone debt crisis.
Ajai Chopra, deputy director of the IMF in Europe, made his surprisingly critical comments Thursday while sitting alongside senior officials of the European Commission and European Central Bank.
All three men had just given a strong thumbs-up to Ireland's efforts to slash spending, reduce its deficit and save its banks from collapse under terms of its three-year, euro67.5 billion ($95.5 billion) international bailout.
Despite this expected positive review, earlier this week Moody's cut Ireland's credit rating to junk-bond status, citing its view that Ireland probably would have to join Greece in renegotiating its debts. EU leaders have yet even to agree on this approach for Greece.
Chopra said Ireland, unlike Greece, was meeting all the targets of its bailout deal, and so its cost of borrowing on bond markets should be falling by now. Instead this week it surged to record highs amid EU policy uncertainty, with Irish 10-year bonds paying yields above 14 percent for the first time.
"What we need, and what is lacking so far, is a European solution to a European problem," said Chopra, an advocate for Europe to agree on aggressive plans for renegotiating debts with private bondholders, said at a news conference at European Commission offices in Dublin.
The EC's Istvan Pal Szekely and the ECB's Klaus Masuch remained stone-faced as Chopra said the EU had failed so far to enact "consistent, cohesive and cooperative policies."
He said it was "critical now for Europe to dispel the uncertainty that has been created by the lack of _ what is perceived by markets and many (people) _ as an insufficient response to decisively handle this crisis."
Chopra and the IMF have advocated the early renegotiation of debts with private investors, such as senior bondholders at some of Ireland's state-owned banks. Ireland faces a staggering bank-rescue bill expected to top euro65 billion ($90 billion), the issue that overwhelmed Ireland's financing power last year and forced it to negotiate an EU-IMF credit line.
But Masuch and Szekely said European authorities still considered it unwise to force senior bondholders at any eurozone banks to eat their investments.
In the case of Ireland, Masuch said, "the stance of the ECB has not changed. To burn senior bank bonds is very risky and would undermine confidence in the Irish banking sector."
The European-IMF troika said that based on their past week's investigation of the Irish financial situation, they expected formal approval for Ireland to receive the next installment from the bailout fund.
"The teams' assessment is that the program remains on track and is well financed," the IMF, EC and ECB said in a statement.
Formal approval, expected next month, means Ireland would get the next euro4.5 billion ($6.4 billion) in loans. Some euro2.5 billion is to come from EU partners, euro1.5 billion from the Washington-based IMF, and euro500 million specifically from Britain, Ireland's biggest banking investor.
The yields on Ireland's thinly traded bonds retreated moderately following the troika news conference. Those of 10-year bonds fell to 13.9 percent, 3-year bonds to 20 percent. They had risen, respectively, to 14.13 percent and 21.18 percent earlier Thursday.
When cutting Ireland's government bonds from investment grade Tuesday, Moody's said prevailing market rates mean Ireland probably won't be able to raise money normally when its bailout funds run dry in 2013, leaving a second bailout with private-sector burden sharing as the likely outcome.
But Chopra said if the EU produced a comprehensive financing plan soon for managing eurozone debts, Ireland's borrowing rates stood a good chance of falling back below 5 percent _ the level needed to permit the once-booming country to resume normal borrowing. Its current bailout deal charges nearly 6 percent interest on average.
And he questioned Moody's credibility as a forecaster.
"It's worth pointing out that rating agencies have got it wrong on the upside during boom times, by underestimating risks," Chopra said. "And it's entirely possible they're also getting it wrong on the downside by overestimating the risks."
The eurozone has been pushing Greece's private creditors to contribute voluntarily to a second rescue package for the country, a move that rating agencies have said would amount to a partial Greek default on its debts. The debate on private sector involvement has shaken markets in recent weeks, especially since governments have withdrawn their previous commitment to avoid defaulting.
"We need to come to closure on this debate on private sector involvement," Chopra said.
AP Business Writer Gabriele Steinhauser in Brussels contributed to this report.