Thursday 22 March 2018

Don't blame us for your mess, says key ECB man

Laura Noonan

THE European Central Bank has been unfairly labelled as the "scapegoat" for the Irish crisis despite warning about the imploding economy as far back as 2005, ECB executive board member Jürgen Stark has said.

In an exclusive interview with the Irish Independent, Mr Stark expressed bemusement that ECB was being "blamed" for Ireland's predicament when financial regulation was a "matter for national authorities" and financial stability was a "matter for national governments".

His comments echo those of fellow board member Lorenzo Bini Smaghi, who penned on article in the 'Financial Times' yesterday, claiming Ireland's taxpayers must "accept the consequences" of lax financial regulation.

Mr Stark claimed that the ECB drew attention to Ireland's economic imbalances and "expressed warnings" repeatedly at EU meetings "from 2005 or 2006 at the latest" and he rubbished the idea that the €150bn loaned by the ECB to the banks could be restructured.

"This has to be paid back," Mr Stark said.

"This not a gift. We would really move in the totally irresponsible and unsustainable direction if we assume that in the end there will be debt restructuring."

Bank package

The ECB man also commented extensively on the latest €24bn bank restructuring package, describing it as a "very important step" that put the country on the "right track".

But he stressed the Government should put the money in "as quickly as possible and not allow for new uncertainty in the markets" by leaving an open-ended deadline for the injection. And he confirmed the ECB has not given Ireland permission to continue an "emergency" lending programme that has advanced almost €70bn to Irish banks that run short of high-quality collateral to pawn directly at the ECB.

The latest bank restructuring plan envisages this emergency funding channelled through the Central Bank of Ireland staying in place for the next three years at an interest rate of about 3pc.

Mr Stark said that even if the facility was allowed to remain in place it would not be "quantitative easing" or introducing extra money into the market, as widely believed by observers.

"The amount made available via emergency liquidity is taken into account in our monetary policy operations, so there is not an additional liquidity effect coming from this instrument," he stressed.

The €65bn in emergency funding is covered by an explicit guarantee from the Irish Government and the State also guarantees some of the €90bn advanced directly by the ECB to the Irish banks.

Mr Stark said the EU/IMF programme, which is being reviewed this week in Dublin, was a "guarantee for all creditors of Ireland" including the ECB.

Mr Stark also said the ECB was "relieved" that the Government didn't opt to set up a 'Nama II' to take over non-core loans from the banks, echoing the ECB's reservations about the original Nama project.


Meanwhile, former Taoiseach and now IFSC tsar John Bruton criticised ECB board member Lorenzo Bini Smaghi for comments that suggested Irish taxpayers should not complain about having to bail out the country's banks. He was responding to a 'Financial Times' article.

"His article doesn't tell the full story,'' said Bruton. "He is not giving the full picture," he said, speaking in Dublin.

Mr Bruton accepted that the ECB did not have the legal power to intervene during the Irish boom, but he said the ECB, the Commission and Council could have seen the risk and could have activated the ECB's Treaty powers to enable it to deal with that.

In an opinion piece in the 'Financial Times', Mr Smaghi said Ireland's taxpayers should foot the bill as they are the ones that benefited during the pre-crisis boom years and elected the governments that regulated the banks as the problems built.

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