Bailing out banks at expense of taxpayers branded 'deplorable'
One of the most important lessons of Ireland's banking crisis is the need to break Europe's "deplorable" tradition of bailing out bankers at the expense of taxpayers, an adviser to Patrick Honohan has said.
Lars Frisell also said that if half the money that was ploughed into the banks here was recouped, the bank bailout would still cost €7,500 per man, woman, and child.
The Central Bank's former chief economist and now adviser to the Governor told a conference in Stockholm that the rules of the game have changed in Europe, and that when a bank fails, losses fall on bondholders and not taxpayers.
"At least in the eyes of the Irish, Europe has turned 180 degrees on this issue," Mr Frisell said. "It is a welcome change, though it came too late for Ireland."
Mr Frisell said the lasting legacy of the crisis here is the vast number of mortgage and small-business loans in arrears.
And he speculated that some loan holders may question why they should have to repay their debt, while creditors and investors get their money back.
"A lot of people genuinely cannot afford their mortgages any longer, as they have lost their job or suffered other financial losses," he said. "But others might ask what moral right the rescued banks have to require full payment since their creditors, among them foreign banks and professional investors, were compensated in full."
Mr Frisell described the bank guarantee of 2008 as "a very costly mistake" and said the now defunct Anglo Irish Bank should never have been included under the guarantee.
"Going forward, I think one of the most important lessons of the resolution of the Irish banking crisis is the necessity of adhering to the Resolution Directive, and to break Europe's deplorable tradition of bailing out banks and bankers at the expense of taxpayers," Mr Frisell said. "The credibility of European politicians ... depends on it."