Sunday 18 March 2018

Stark truth is we're mostly to blame for our crisis

THE ECB has been a focal point for Irish anger since last November, when then-Justice Minister Dermot Ahern famously accused the Frankfurt powerhouse of "bouncing" Ireland into the EU/IMF deal.

But Jürgen Stark feels the ECB's position has been "widely misunderstood" and the institution has been used as a "scapegoat" for Ireland's troubles.

"I don't see the ECB as the driving force for this bailout," Stark replies. "As a general rule, when a country runs into difficulty there is a normal human reaction to be in a state of denial -- 'the problem is not there, our case is different to the others'.

"But sometimes to have a view from the outside, from the IMF, the commission, the ECB, can help to make politicians aware that the situation is not sustainable."

As far as Stark is concerned, that's all the ECB did in Ireland, and it was for Ireland's own good.

The economist becomes more animated, though, when we turn to more recent and widespread criticisms of the ECB in Ireland and the growing perception that the demigods in Frankfurt are responsible for many of our woes here.

"I don't know where this (attitude) comes from," he says. "Maybe it's based on totally wrong assumptions, a misunderstanding or misinterpretation of the role that a central bank has."

The ECB "cares about Ireland" but its "primary objective" is to deliver price stability to the 17 eurozone countries by setting interest rates at a level that curbs inflation, Stark asserts.

"Financial stability is the task of governments, it is not our task," he insists.


"I don't like the way this European institution -- which in the view of the markets and the European people has done an excellent job in managing the crisis -- is now seen as the scapegoat for the problems in one euro-area country.

"We are not responsible for what happened in Ireland."

Former Taoiseach and EU ambassador John Bruton begs to differ. In recent weeks, he has repeatedly criticised the ECB for failing to use its supervisory powers to curb the financial and economic time bomb that built up over the boom.

But Stark adds: "The ECB has no legal right to interfere or intervene in supervisory issues at a national level."

If there is blame to be assigned, Stark seems to think much of it should be laid at Ireland's own door for "the misconduct in economic policy, the way the authorities were not in a position to correct the emerging imbalances in the housing market and real estate".

"It is very easy to blame somebody outside the country (for the banking crisis)," he says. "But to be very, very clear: who has failed? The supervisory authorities in Ireland, external auditors in the banking system . . .

"We can go through all the layers and they all have failed, not only in Ireland, also in other countries. But the ECB has not failed."

Stark does seem to support one of Bruton's assertions, though -- the notion that Frankfurt must have seen the pressures building in the Irish economy and the financial system.

As the ECB's economics chief, Stark was acutely aware of the ballooning growth in the banking sector, Ireland's drastic wages hikes, and the corresponding loss of competitiveness, and the flawed economic policies being followed.

"On the initiative of the ECB, these issues were addressed behind closed doors in Brussels, there were warnings expressed time and time again, starting in 2005 or 2006 at the latest," he says.

"But it was not seen as an urgent issue to address these emerging imbalances in Ireland, in Greece, in Portugal, and to correct wrong economic policies."

The ECB also warned about Ireland's "overstretched financial system" in its financial stability reviews, Stark says. Again, nothing happened and the status quo was maintained.

"For a certain period of time, a country is protected from adjustment by monetary union," says Stark.

"Then markets realise that a situation isn't sustainable and you are directly attacked and hit."

Indo Business

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