Ailish O’Hora: It's about time the ECB stepped up to the plate
If there was ever a time for the European Central Bank to show a bit of backbone it’s now.
The whole European project is sitting on a knife edge and unless the ECB gives in to the fact that it will have to suck it up when it comes to the bank and sovereign debt it is exposed to we are looking at a doomsday scenario.
While the latest comments by outgoing President Jean-Claude Trichet reiterating that if Greece defaults on its debts its bonds can’t be used as collateral for loans seem childish, frankly, there also seems to be an acute lack of awareness at the bank of the bigger European picture.
Maybe it’s because he wants to go out with a bang but now is not the time for such grandstanding.
There is hope that his replacement Italian Central Bank governor Mario Draghi will be more understanding with the trillions of debt owed by that country.
But up until now the bank is obsessed with inflation and it needs to look at the bigger picture.
In many cases smaller countries like Ireland are desperately trying to grow their way out of recession and if the ECB continues its bid to bring euro area inflation from the current 2.7pc to 2pc as quickly as possible by continuing to raise interest rates then it may ultimately regret its focus.
However, the timing of a leak today to the influential German publication Die Welt about European plans to tax banks is also interesting and such a move would allow the ECB to back down a bit without losing face as background talks between EU and bank officials ahead of the summit continue.
The International Monetary Fund has made it clear on many occasions that the European Commission and the ECB have to start singing off the same hymn sheet.
The markets have already spoken and believe if this does not happen the euro could collapse.
In fact, IMF Ireland chief Ajai Chopra reiterated this point in Dublin last week when the troika finished its latest review on Ireland’s attempts to fix its finances.
It seems that politics, again, has gotten in the way of finding economic answers to the wider European debt problem.
Unless an agreement is reached on making the €440bn European Financial Stability Facility bigger with the ECB’s agreement we might as well forget it (incidentally the size if the fund is the exact same as the original figure for Ireland’s regrettable bank guarantee).
The argument about throwing good money after bad does not apply here as there are other ways to restructure debts including longer payment times and lower interest rates making the chances of eventual payback greater.
Remember, we all know the ECB is currently propping up our banking system the bank seems to forget it was shoddy lending practices by European banks that led to the banking crisis here and exposure to bad loans in other bigger countries like Spain.
Ahead of the EU summit in Brussels on Thursday, it seems it’s a case of who blinks first – the Commission or the ECB.
The European Commission isn’t exactly sin free in the bigger scheme of things either.But we all know in a worst case scenario sometimes if a loan can’t be repaid a main street bank will write-off part of it.
We’ve already seen this with our own banks – it’s time for the ECB to step up.