Bundesbank chief resigned after pressure put on Ireland
Economist blames ECB for precipitating a 'run' on Irish banks
Published 05/05/2011 | 05:00
THE former president of the German Bundesbank, Axel Weber, resigned partly because he disagreed with the pressure put on Ireland to repay all bank debts to bondholders, a prominent economist claims in today's Irish Independent.
Mr Weber was favourite to take over the presidency of the European Central Bank and his sudden resignation sent shockwaves through the European financial and political systems.
The job is now expected to go to Italian central banker Mario Draghi, which will add to the political difficulties of German Chancellor Angela Marckel.
Writing in today's newspaper, Gary O'Callaghan, professor of economics at Dubrovnik International University, says Mr Weber also thought Ireland should be given a longer repayment period for its bailout loans.
Dr O'Callaghan, who previously was on the staff of the IMF and acts as an adviser to various governments, blames the ECB for precipitating a "run" on Irish banks last September through public complaints about the cost of supporting Irish banks.
Over €130bn left the Irish banking system between September and November, from domestic and foreign banks.
"Offshore banks are in no way dependent on the Irish Government for existing or potential support," Dr O'Callaghan says.
"Both domestic and offshore banks depend on the ECB, however, and the common bank run points to a common cause -- the threatened removal of ECB support. The ECB had to very significantly increase its support to Irish banks as a result of a run that it itself precipitated."
He suggests that another banking inquiry could interview people like Mr Weber. "Their evidence would surely bolster Mr Noonan's diplomatic offensive to secure more favourable terms."
He believes a bailout would have been needed even if there had not been the run on the banks but it could have come later -- as Brian Cowen hoped.
"It [the bailout] could have been arranged quietly and without such a loss in deposits. Moreover, it should have included a credible ECB commitment to the medium-term stability of the banks.
"We still do not have such a commitment and, as a result, our banks continue to shed deposits and have turned into 'zombie' institutions that cannot underpin a recovery," Dr O'Callaghan says.
"The Irish programme will have to be revised because it cannot be implemented as planned, and the debt level is unsustainable," he adds.
See Gary O'Callaghan