U.S. denies favoring Irish banks

The U.S. has denied a claim by a leading Irish economist that Treasury Secretary Timothy Geithner had "torpedoed" a plan to allow Ireland to write-off some of its bank debts.

The denial came after UCD economist Morgan Kelly said that Geithner had played a key role in the negotiations on how to deal with Ireland's massive bank debts.

Kelly said that during last year's bailout negotiations the IMF had presented a plan to impose a "haircut" on €30 billion of unguaranteed bank bonds.

Sign up to The Irish Echo Newsletter

Sign up today to get daily, up-to-date news and views from Irish America.

These were bonds not covered by the state banking guarantee and the "haircut" would have reduced the state's liability by two-thirds, or €20 billion," the Irish Independent reported.

Kelly said the deal was "torpedoed" unexpectedly by an intervention by Geithner. Kelly claimed that Geithner believed bankers took priority over taxpayers.

The report said that "a senior U.S. official" had dismissed Kelly's assertions as "inaccurate".

The official pointed out that the European Central Bank and the European Commission did not want to impose haircuts on bondholders who loaned money to Irish banks.

"The ECB and EC were both dead opposed and they are decisive. The U.S. is not a decision maker on European issues," the reported quoted the official as saying.