Big guns battle over cost of saving banks
THE heavy artillery is out in the war of words with Europe. Yesterday, a leading member of the governing council of the ECB used the pages of the 'Financial Times' to assert that it was right and proper that Irish taxpayers should bear the cost of saving the Irish banks.
One of our own biggest guns, former Taoiseach and EU ambassador John Bruton, has argued that the ECB and the EU Commission could, and should, have done more to rein in Ireland's borrowing binge. He accepts that the ECB's legal powers to intervene were limited, but believes it could have used its undoubted influence to reduce the risks.
One can see why Lorenzo Bini Smaghi would want to make his argument in the 'Financial Times'. That newspaper has been one of the strongest advocates of the view that it is deeply unfair to Irish taxpayers that the lenders to Irish banks -- the bondholders -- are being protected from losses.
Most observers believe that the ECB is insistent that no Irish bank shall fail. In an interview in this newspaper today, another ECB council member, Jürgen Stark, makes clear that the ECB wants all the senior bondholders repaid, because any default might spread contagion across the eurozone banking system.
This is what Irish taxpayers, and even Irish government ministers, find hard to understand. If the bondholders are being spared to protect the euro banking system, surely some of the costs should be borne by that system?
This is even more the case if the system itself was at fault. Everyone agrees that the Irish regulator fell down on the job. But Mr Bruton is right to ask why the ECB, admittedly with limited legal powers, or the German Bundesbank, with much greater ones, did so little while German and French banks supplied the cash for a 30pc annual credit explosion in Ireland.
Mr Bini Smaghi's explanation is unconvincing. Worse, it harks back to an unpleasant undercurrent in all these discussions; that the core problem is the tendency of some, irresponsible, countries to try to shift burdens on to more sober EU citizens.
The crisis was caused not only -- or even mainly -- by Irish, Greek and Portuguese excesses. Its potentially fatal severity is due to deep flaws in the design and operation of the euro. If one designs a camel, one cannot expect a horse.
Ireland's first responsibility is to correct its public finances, and progress has been far too slow. Europe is loading us with insupportable burdens and we would be entitled to say that enough is enough. We will only be in a position to do so, however, once we have shouldered our own.