The European Central Bank shows its true colours
Ireland ruined its public finances mainly by guaranteeing the debts of its lunatic financial sector in 2008. This emerald crash was a result of wayward private sector behaviour, not reckless state spending, despite what the blinkered euro policy-making establishment likes to argue. Dublin was actually running a budget surplus in the years leading up to the meltdown.
Of course, Ireland couldn’t bear the cost of bailing out its banks and had to be rescued itself by fellow European states, the European Central Bank and the IMF in November 2010. But those loans have come at a punishingly high price. Dublin has to commit to paying back the funds it borrowed over a very long period and is also being required to inflict extreme austerity on its population. This medicine has now served to push the Irish economy back into recession.
The new Irish government has been looking at some of the terms of that rescue rather more carefully, in particular a deal to prop up an rampagingly corrupt property lender called Anglo-Irish – a deal that Dublin managed to render slightly less onerous last month.
But many people in Ireland are still questioning why they are being economically crucified to pay for the mistakes of a tiny minority of bankers, property developers and politicians who, between them, blew up the disastrous Irish real estate bubble.
Well, this week the German European Central Bank policymaker, Joerg Asumussen (pictured), came to Dublin and told Ireland not to even think about refusing to honour the debts of its bust banking sector.
His reasoning was telling:
“I frequently hear in the Irish debate the sense that the debt resulting from the bank rescue is not Ireland’s debt. I can understand this sentiment and how many people feel about this situation. But what must be understood, is that in the run-up to the crisis, insufficient domestic policies (banking supervision and economic policies) played a major role in excessive credit growth and risk management failures in the Irish banking sector, the bubble in the housing market and the loss of competitiveness. The ECB has no supervisory responsibilities, despite claims to contrary. However, the ECB had warned years before the crisis that imbalances were building up in a number of euro area countries. Moreover, from a market perspective, those debts associated with the banking crisis are not differentiated from other sovereign debt. With the guarantee of 2008, large parts of the debt of Irish banks became a debt of the State, and any desire to offload this debt could have dire consequences.”
This is breathtaking. Asmussen is saying that because a previous Irish government failed to curb the monumental idiocies and multiple corruptions of its banking sector, it is right that the liabilities of those institutions should become public debt and that the Irish people, the vast majority of whom gained nothing from the bubble, should commit to paying off the sector’s creditors indefinitely. It doesn’t seem to have occurred to Asmussen that, in an ideal world, those reckless banks would have been allowed to go bust.
We are well acquainted with the noxious reality of too-big-to-fail financial institutions here in the UK, having been forced to bail out out the Royal Bank of Scotland and Lloyds in order to prevent something even worse happening. But it seems that the European Central Bank considers too-big-to-fail not only to be acceptable, but a point of moral principle! In Asmussen’s eyes, and one must also presume the eyes of the European Central Bank, if you don’t, as a nation, police your banks properly, you not only have to pay for their mistakes, but you deserve to.
What nauseating self-righteousness. And what hypocrisy too. For where is the punishment for the creditors of those Irish banks – many of them German financial institutions? If Asmussen is so keen that sinners pay for their mistakes, why is he apparently content for those profligate lenders (of other people’s money) to get off free of charge?
The Irish people will hold a referendum on 31 May on whether to accept the new “fiscal compact” that Mr Asmussen’s compatriots are so keen on. The assumption is that a majority will vote yes, and avoid instigating another European crisis. I think Mr Asmussen’s bone-headed comments alone should be reason enough for the Irish people to reconsider.Tagged in: austerity, European Central Bank, fiscal compact, ireland, Joerg Asmussen
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