Lorenzo Bini Smaghi: Ireland’s Taxpayers Must Share the Pain

LBS writes in the FT : article is here.

159 replies on “Lorenzo Bini Smaghi: Ireland’s Taxpayers Must Share the Pain”

The obvious response to property bubbles is to raise interest rates. The responsibility for that lay with Lorenzo. As most of the periphery suffered similarly it is reasonable to blame much of the problem on the ECB’s overly low interest rates. No single act of an Irish, or Greek, or Spanish government could have slowed a property bubble as quickly as a sharp interest rate hike.

It follows that much of the responsibility lies with the ECB and its backers – the Euro countries in general, not in the particular countries.

On a tangentially related note, I remember asking where the money had come from, when Greenspan saved LTCM’s position tens of billions of dollars by lowering interest rates, If he improved LTCM’s position, he must have made someone else’s position worse.

It’s one thing to share the pain (even if we are innocent parties in the whole deal) but the Irish taxpayer is taking all the pain. Enough!

I think this article wins the prize for “Worst Headline of the Year”. Share the pain? This makes it sound like Irish taxpayers are objecting to paying anything to fix insolvent banks rather than stumping up €70 billion. But Lorenzo BS probably didn’t pick the headline.

The text is bad enough.

“Recent events have shown that, as long as the accountability of supervisors to taxpayers is primarily a national affair, and discretion in the implementation of national financial regulations and supervision is allowed, then there is a high risk that taxpayers will foot most of the bill. They should not complain when it actually happens.”

So that’s it then? That’s the post-hoc explanation for why we had to pay back all the money European banks loaned to Seanie at the the peak of the Celtic Tiger? We have to pay because we had a bad regulator.

This is lame. Very lame. Regulators everywhere failed and may fail again. This cannot always be used as an excuse for private investors failing to monitor and assess the risks they are taking.

I would agree that the general tone is akin to a red rag to a bull but I return to an old refrain on we seeing unfairness without difficulty from afar but not so when close by.

The Irish Examiner in an editorial today hits out at the AIB signal that it would be “reasonably generous” on severance packages. The newspaper says figures based on up to eight weeks pay per year’s service, plus statutory redundancy, were bandied about yesterday:

“One of the most provocative things about our economic collapse is the inequity of it all. Some people seem unaffected yet others struggle to survive.

Figures like those suggested at AIB are unheard of in most of the economy. They are even more bizarre when you consider that the bank depends on taxpayer bailouts for funding. Payments on this level would add to the sense of injustice simmering right across this society as they are the exception rather that the rule. A similar argument can be made about semi-state staff expecting windfalls if those companies are privatised.

AIB staff from the boardroom to the cash counter may not like to hear it but sooner or later the Government is going to have to take a stand on creating a more equitable society and this is as good an issue as any. It is not about punishing bank employees but about redressing some of the terrible wrongs in this country.”

There is a big problem in my view with an article which assumes that categories like “the Irish” are the most relevant ones: categories like “rich” and “poor” strike me as being just as important in the European context. And the regulatory failures involved were not just Irish.

On the other hand, I think this offers an opening. If you are the sort of person who thinks that there should be quid pro quos for a more favourable bailout package (I am not such a person, since I think bailout packages should be designed so that they actually have some chance of working), then surely focusing on the regulation of financial services in Ireland is more relevant than focusing on our corporate tax rates. Let’s not forget the costs that Depfa imposed on German taxpayers; and besides, I’ll bet that most Irish people today would be delighted if we had stricter financial regulation here.

Lest we forget, this is the same LBS who in November 2007 wrote:

“The Irish example shows that it is possible to prosper in the monetary union while having a higher potential growth rate than the rest of the union. This does not need to be “paid” in terms of divergent or explosive inflationary outcomes and / or in unsustainable competitiveness for the country.”

It’s all so pat, isn’t it? His analysis is plausible on one level and ridiculously simplistic on just about every other level. Crucially, what Lorenzo fails to note is that establishing the euro was a political exercise of which the major beneficiaries were the larger EU member states in respect of their external trade and currency stability – as was the intention of the project from the outset. What he also fails to recognise is that the peoples of Europe would have rejected the true level of political integration contingent on a properly designed single currency project, then as now. The present crisis in the euroarea is the result of political failure at the top of the EU and that’s the level at which it needs to be resolved. Even if the Lehman’s collapse had never happened, sooner or later the crash would have come exposing the flawed policies that underpinned the euro experiment. Similar catastrophe, just different causes, was inevitable.

One wonders too whose interests this article is meant to serve? As an Irish citizen, I have no difficulty in accepting that Ireland made grave policy errors and that as a society, we first demanded, and then rewarded, only those politicians who were prepared to follow a profligate formula in the management of our affairs. Nor is there any difficulty in accepting that we must be prepared now to endure the necessary fiscal corrections that follow from the previous open cheque-book policy of successive governments over the past twenty years. That doesn’t mean, though, that the issue of broader political responsibility at EU level for this crisis should, or can, be ignored either. Our predicament may be largely of our own making. But it is not entirely so. It is also self-evident that the price of getting out of it is more than we can bear. The EU needs to get its political act together.

In principle, the costs of restructuring these banks should mainly be passed on to shareholders and managers, and thus subsequently on to bondholders.

… as long as supervision remains national and accountable to the taxpayers of the country with indebted banks, those taxpayers should, in the first instance, assume responsibility for any failures.

There’s a bit of an discontinuity in his logic. Why should the bondholders (especially unguaranteed bondholders) be spared?

I think the idea of pan-Euro banking regulation is a good one though. There is an externality in banking, not exactly an earth shattering idea.

Why does he hate us so? The whole thing is confusing. For a guy working for an insitution called the “European Central Bank”, he doesn’t appear to know what its role was in the 1999-2007 period…

Sovereign state must be responsible for managing internal affairs such as the closed economy – whats the problem there? If the Europeans told us how to manage our internal affairs there would be uproar, however, they are to blame for not imposing a solution before the Irish lemming population realised they were ‘having second thoughts’ on the way down?

Grow up Ireland

Eoin Squared
He doesnt hate us. He is a grown up adult. We took this responsibility : many of us cried foul, others created ever more elaborate post hoc rationalisations to defend the increasingly indefensible. I know what I did. Now hes saying : you bought it, you pay for it.
Burn them all I say….let Jean Claude sort it out. 🙂

“If the Europeans told us how to manage our internal affairs there would be uproar”
There was, when they told us to not let any bank fail. Fair enuf, our cretinous government elected and permanent didnt listen to the uproar…. But lets be very clear here who drove whom to what.

I agree this is insensitive, when so many are eager to take umbrage, but, unfortunately, the penalty for misgovernance will always fall on those who exercise the ultimate politcial authority and, among these, it will fall on those do not enjoy the economic or politcial power to evade it.

There are three aspects worth considering, but which do not seem to get much attention.

1. Yes, bondholders should have been burned, but they have been replaced (in funding terms) by apparently open-ended ECB liquidity support – at low cost compared to the coupon bondholders would require or the rate of interest depositors would seek. How will this be unwound?
2. There’s a lot of talk about the total fiscal cost of the bank bail-out and I know the total cost is still uncertain, but some of the fiscal input has just disappeared while some is an ‘investment’ which, presumably will be recovered with a return. Again, all very uncertain, but does anyone have an idea of the net cost? The financial regulator sounds quite sanguine:
3. In the run-up to the bubble period and during the bubble period Ireland’s tax revenues on which EU contributions are based were far lower proportionately than those on most other EU member-states. I sense the focus on the CT rate is convenient sound-bitery for a fundamental political anger among many of our EU partners that Ireland took full advantage of the EU’s institutions and procedures to boost its economic performance, but didn’t contribute as it should have while it was boasting about its Celtic Tiger prowess. It didn’t pay its dues when it could and should have; now it wants others to contribute from their payments to bail it out when the bubble burst. Does anyone have any idea how much Ireland would and should have paid during the glory years if its tax revenues (on which EU contributions would be based) were around the EU average proportionately? I have an idea that the extra amount Ireland could and should have paid might actually exceed the net cost of the bank bail-out.

If we had some answers – however speculatively quantified – to these questions we might have a better handle on the context in which we’re operating. Any takers?

If the NCBs were akin to department managers then the ECB was the CEO who rather over delegated. Primary accountability to the culpable manager but the CEO must accept some responsibility.


When I say manage I also mean non populist management, the lemmings didn’t register the bank saving directive as an election issue until very late in the day after promises of more credit were consigned to the dustbin.

I mean internal affairs like the closed economy – housing; public sector etc

This whole debacle goes back to personal responsibility and for some reason that concept escapes us…….

My grandmother used to say, “The paper never refuses the ink!”

Now according to this, at end of page, –

‘The writer is a member of the executive board of the European Central Bank’. You write trash like that in a term paper you’d get an E.

The terms Gob and sh*te come to mind.


Ireland did not have “favourable taxation for banks”, unless LBS means he wants a single European tax rate.

He seems to greatly enjoy the fallacy of blaming individuals for more or less aleatoric events. He goes further than ascribing foolishness to the thick Paddy: he accuses Paddy of deliberately mis-regulating Irish banks because Germans held the bonds.

Shifting blame towards the victim is a typical behaviour of dominant partners in abusive relationships.

Veering away from economics and psychology, and towards economics and sociology, I wonder whether Ireland’s crisis has had a positive effect in mobilising Anglosphere opinion against the Continental-dominated ECB, relative to the alternative in which only Greece and Portugal are against Germany and Italy.

If we were doing a better job of getting our own house in order and correcting the myriad of mistakes we have made over the last 10-15 years, then maybe we could turn to Europe and tell them to get their house in order and look at the mistakes they have made. As it is we are the misbehaving, stupid, insolent child doling out a lecture to the slack parent…doesnt work.

@ Brian Lucey

LBS has taken a very keen personal interest in b*tchslapping the Irish taxpayer around recently. Its either personal or he’s been tasked with the by the Governing Council. It cant simply be a coincidence. On a similar basis, he’s clearly the main ECB member out there trying to argue for ECB super-oversight going forward and for power-augmentation for pan-European institutions. “Whither Europe…” was the central bankers’ manifesto for a Federal Europe.

That LBS fails to understand that his own argument actually argues for some level of “pain sharing” (his words) to also be felt by European taxpayers, in line with some of the oversight responsibility being at a European level in the 1999-2007 period, is all the more confusing. I yield to no one in my argument that bondholders need(ed) to be protected to some degree during the crisis, and that systemic collapses would lead to public rather than private responsibility (i made that argument 2 years ago), but even i couldn’t write this tripe with a straight face.

We are not an affiliate of a corporate entity and if we wished we could burn bondholders, leave the Euro, blame the devil bla bla….we dont have the balls to do any of these things (except maybe blame everyone)

If the Europeans had insisted on the Irish deflating the housing bubble how would that have happenend? If they sought to correct our spending insanity and tame the unlimited ego of the Irish psyche – how could they impose a restraint?

Now after the fact the ECB etc have the leverage to impose their solutios because we let them…….so who is driving the car…we were but decided to get plastered and left the responsibility to the ‘adults’ so they decide where the car goes…child psychology 101

I suggest we share the pain in the following proportions
Irish taxpayer 30% Bondholders/Ecb 75%.

@Peter Stapleton
Nice one 😀

Yup. We had moments in time to act on bondholders. Those moments passed with us behaving like good europeans (based on a view of the ruling party as to how the rest of the europeans wanted us to be ‘good’). One wonders if there was indeed a three-line whip to Mr. Lenihan regarding “save your banks” and if that is now institutionally regretted at the ECB. If so, it is as @Edward says – we are being abused – mistakes were made at the ECB and we are being blamed for following those mistakes.

At this stage, Signor BS is becoming pathological.

As a fellow ECB Board member what does Prof Honanhan think of such commentary from his esteemed colleague

As a fellow ECB Board member what does Prof Honanhan think of such commentary from his esteemed colleague

@ Mr Bond, Prof Lucey, etc

I also note Mr Bini Smaghi’s prediliction for waking up in the morning, leaping from his bed and with joy in his heart, having a swift clatter around the backs of Irish heads before breakfast. I said before, and I still think it is a good idea to invite him over for a proper debate.

@ Paul Hunt

I agree particularly with your second point. I have asked both Philip Lane and John McHale this, and got the answer that the net write-off cost looks around e50bn at the moment – but that is only my report of what I understood. This is not an acceptable outcome.

@ Paul Hunt

your first point is an interesting one – lets assume that the ECB/ELA liquidity was not available at base, but was replaced by funding at base +200bps (ie a not bizarre risk premium for even quite solvent Irish banks). So, €155bn (yes it was not always this big, but eligible-collateral issuance + official liquidity was always probably this high), for five years (ie 2008-2013), at 200bps more expensive than base = €15.5bn. Ok, its not the same as the 50bn or so cost of the bailout, but its not nothing either.

The argument proposed by Bini Smaghi is so loose that it can also be used to justify default.

If the ECB is so poor in it’s judgement that it has allowed itself to become the guarantor of loans to the Irish state – loans which the Irish state cannot pay off – then it must share the pain.

The logic and assumptions are appalling though. I assumes that there were alternative policy choice bundles offered to the Irish public regarding light and heavy regulation, and there is some vague handwaving in the direction of moral-hazard and free-riding arguments.

It ignores the lessons that the crisis has taught the German banks – that they are too important to be allowed fail – and the more general problem of a Eurozone which has been run in the German interest.

A European economic system run as a German led hegemony is essentially a free-riding problem.

LBS should leave the propaganda to the professionals

What’s particularly interesting is the way in which he mashes up entirely different concepts as if they are identical.

Let me list a few corrections that spring out immediately;
1. Irish Voter is not equal to Irish Taxpayer.

2. Foreign Creditor is not equal to Foreign Taxpayer.

If we take these two errors, we could easily construct some interesting options.
First, many foreigners pay taxes here, but couldn’t vote. Even many Irish people couldn’t vote here, but now pay taxes here. If we take “no taxation without representation” as a principle, then all these people should be exempt. Thanks Lorenzo, that’ll be interesting.

Second, the money was originally owed to foreign investors. I’m unaware that foreign taxpayers were owed money in any volume in 2008. Well, they are now, and it was a conscious decision of the ECB to support the process that allowed the original creditors to rotate out. Since that was a body constituted by the European electorate and it made a lousy decision, the taxpayers have apparently voted to pay the bill. Oh good! European taxpayers voted to pay the bill.

Mr. ECB’s logic doesn’t have a leg to stand on.

It is quite unbelievable that an ECB executive board member could write so incoherently. Feel sorry for the poor sub-editor who had to write the headline.

LBS is only stating the obvious. The question is whether the Irish taxpayer will be able to carry the load ordained for it. The markets don’t seem to believe so.

The consequences for regulation in the future would appear to be positive. Taxpayers are on the hook for regulatory failure. You can’t run a clientelist system where accountability comes as standard and actions have consequences.

I wonder if LBS or anyone else in Kaiserstrasse reads this Blog? If not, a lot of the forceful arguments that are being made are somewhat wasted.
Would it not be appropriate for one or a gorup of the distinguished academics who have contributed to this thread to compose a letter to the FT setting out their objections to the LBS view?

As many others have pointed out on this thread, the basic premise of his argument is simply false. He argues that there was only one regulator, ‘voted for’ by us. Of course, this is nonsense. There were multiple cross-border failures of regulation, ‘voted for’ by lots of taxpayers in other jurisdictions. Our banks were regulated solely by us, but the German and French banks that lent to ‘us’ were not regulated, or had regulators voted for, by Irish taxpayers.

“We have to pay because we had a bad regulator.”.

I read your quote of LBS differently:
“accountability of supervisors to taxpayers … primarily a national affair … and discretion in the implementation of national financial regulations and supervision”.

“There was, when they told us to not let any bank fail.”.

I am somewhat of the impression that FF left it to the last minute to disclose, what they should- -must have know for at least twelve months, to the EU about what was going on in a certain bank and its affect on others (though this raises the issue that foreign banks, such as BoS, were able to come in here, under EU rules, and operate perhaps less than prudently). It would have been more difficult perhaps for the EU to be ware of those goings on, given the gimmickry to conceal it. All of which goings on, quite likely, was informed by a certain culture in this country – let’s just say as an example, will you have a pint or a transfer?

Is LBS more about promoting himself for a career in politics or professional advancement rather than discussing the Irish situation…

“The question is, how should we judge if a crisis is truly systemic, and therefore whether taxpayers should rightly bear some of the costs of resolving the situation?”

Truly systemic for whom? Europe or Ireland?

What taxpayers?

If that self-contradictory piece of nonsense is the best an executive board member of the ECB can come up with why are our political leaders so impotent?

Time to call the ECB bluff.

They will fold.

Where was German regulation? Hypo Real Estate & Depfa?

The more I see of the ECB the more it seems the Euro model is fatally wounded.

Maybe they know it and 2013 is when the reset button is pushed.

@ Jane

calm down, its a contemporary cultural phrase. If its good enough for dictionary.com, its good enough for me. Lets not make a Rossport out of this.

“to slap someone with an open hand, esp. in an attempt to put them in their place or cause humiliation”. Sums LBS up perfectly.

The leaps of Logic taken by this guy are breathtaking. That he is a member of the board of the ECB should alert people to what type of people we are dealing with here. It would remind you of the BS Seannie was spouting before his world came to crash.
Eoin makes a good point that it is either personal or he has been given the task.
I reckon he has been given the task by the guys who call the shots in the ECB (the investment banks and large multi nationals).
If you were an investment bank making billions in the euro area wouldn’t it be worth your while to ensure you had the ear of as many ECB board members as possible. Given how deep these guys pockets are it shouldn’t be beyond peoples imaginations to at least think this a strong possibility. The investment banks make prudent investments to protect their profits all the time.
On a completely unrelated note did anyone see “Inside Job”? Interesting look into the moral compass the investment banks possess. Not even Ireland is that bankrupt!

Paul Hunt
‘..fundamental political anger among many of our EU partners that Ireland took full advantage of the EU institutions and procedures’.

This is a frequently made assumption (Garret FitzGerald, Peter Sutherland, Brigid Laffan et al) for which i would like to see hard evidence. The EU is an entity where it is normal for the bigger players or the more egregious ones to pull strokes: Germany and France violating the Stabilitya nd Growth Pact, Greece holding up the traffic at many an EU summit over the name its northern neighbour ‘Macedonia’ should have, Maggie Thatcher demanding a repatriation of the outsize UK contribution to the Brussels budget, Spain using hardball tactics so that its factory fleet can fish with impunity up and down Europe’s atlantic coast etc etc.

The organzation is one where brazen and machiavellian types flourish and indeed where the institutional memory of low moves is remarkably short. But Paul Hunt would have us think there is a morality council operating somewhere at the heart of the EU where Ireland has been condemned for serial rule-breaking. For all I know his motives in suggesting this are honourable ones. But it s also a clever pyschological device to induce a sense of unworthiness and thus helplessness, making resistance appear futile; anyone with passing knowledge of how some of the poor unfortunates in badly-run orphanages and care-homes were treated will recognise the syndrome all too well. It is to induce the victim to surrender to his or her fate however wretched the treatment being meted out by figures in authority. It is far bettter for ‘Irish Europeans’ to demand that the EU desist from the cannibalism which the likes of Bini-Smaghi appear to delight in and try somewhow to restore some of the cooperative values which gave the EU momentum before the hubris induced by the Maastricht and Lisbon treaties took over.

@Mr. Bond,

Thank you – and thanks also to Gavin for picking up on my second point. I know some of these calcs are highly speculative, but a lot of economics is based on the development of counterfactuals to make estimates of costs and benefits. Do economicst do opportunity cost anymore?

All the angst here is about what should have been done, but wasn’t – mainly because the legal, institutional and procedural arrangements weren’t in place. (For example, if had had the equivalent a US FDIC we probably could have gone into Anglo on a Friday and come out on a Monday morning with the shareholders shredded, bondholders head-shaved and a much shrunken but performing loan book backed by the deposit book transferred to a viable player. But we didn’t – and the problems in the other banks meant it probably couldn’t be done in isolation.)

I think much of the angst here could be short-circuited if an attempt were made to quantify the opportunity costs, potential benefits, benefits/costs deferred, etc. I’ve tried to kick this off. Thank you for putting some numbers on one part. Let’s hope we’ll get other takers. We might also be able to figure out what’s bugging Dr. Bini-Smaghi. (I suspect how the expansive ECB liquidity support will be unwound is worrying him. The ECB doesn’t have the kind of Tier 1 capital that it wants other banks to have to absorb any losses that might come its way.)


Is there a teeny tiny point though to be made though, that voters (well 40% of them which was enough) did make some disastrous choices which consigned the rest of us to disaster.
Personally I thought the 2002 election was the one that needed to produce a different result. 2007 may have been too late to stop the crisis, but a different government might have been dealt with it a bit differently. So I always say, what information were voters missing in those elections, particularly the 2007 one? They knew about the Tint, they knew about Bertie’s finances, they knew we were in a bubble and the Pope’s Children had been broadcast on prime time telly and McW’s book was topping the charts.
What did they think was going to happen and who did they think would be put on the lifeboats first? The board of the AIB or the mortgage holders? When I heard friends talking about an “equity release” I had to ask them what that was.
For sure, the ECB has a lot to answer for; I don’t see why European bondholders get to lecture us since they were happy to cash in on the good times and I’m not taking any crap from Germans on our CT. Then there were all the professionals whose negligence was criminal, but I’ve consistently said that those who over-borrowed and those who kept putting back in FF must accept some responsibility for their own messes- and actually I think they do, which is why there are no protests. How can you protest against yourself for over-borrowing or voting FF?



The headline is rather incongruous. Of the three groups to suffer so far, shareholders, subordinated bondholders and the Irish State, it is the latter that is set to shoulder the largest burden. LBS must be aware of this. As we saw yesterday the employees of the banks are next.

Shareholders have been almost completely wiped out. A 70% haircut on the remaining €7 billion of subordinated debt will do likewise. That leaves the senior debt and the State. So far the State has taken all the remaining pain.

The problem is that the bondholders have been allowed to skip out of town. There were €82 billion of bonds in the covered six held by non-Irish residents in August 2008. The most recent CB data now puts this at €28 billion. A €54 billion reduction with all senior debt repaid.

If a 50% haircut is applied to all unguaranteed debt the savings would probably be around €13 billion. It is not the full amount because over 40% of the senior debt is in BOI and has lower losses to cover than the savings such a haircut would offer. If BOI is excluded the savings would be €8 billion.

If a such a haircut cannot be applied to secured debt (as has been suggested by Prof Honohan) then the savings will be reduced to around €8 billion (or €6 billion if BOI is excluded).

Prof. Honohan’s “calculation” is that the future costs of this action with immediate savings of say €8 billion is that the overall outcome will be negative. €8 billion is a massive amount of money. Saying that “Ireland’s taxpayers must share the blame” is a little odd given the voluntarily acceptance of most of it so far.

Once the bondholders are gone it will be the remaining parties will be the State, the depositors and the ECB. Who will have “to share the blame” then?

@ Eoin Bond
Why does he hate us

Simple-we have 200b+ of his money and he does not have the foggiest how to get it back.

The notion that we can deleverage by 500m a week for years without additional massive losses is simply daft and Lorenzo knows this.

We’ll be defaulting whether this chap likes it or not. Another emergency budget on the way too.
Govt might not last once social welfare cuts become inevitable.
No solutions now – just how to make the best out of a bad situation
This LBS guy is irrelevant.

From Inda just now…food for thought for LBS…


Can anyone figure out how we are going to get an additional 6% of AIB for 13.3billion. Looks like a very valuable bank based on this transaction.
Or is it more DoF magic.

This article is flawed in so many ways it is hard to know where to begin. But, the erroneous assumption in the first paragraph sets the tone for the rest of the article. So, illustrating the falsity of this assumption seems an appropriate way to highlight the fallacy of the argument

“If taxpayers have the right to share in decision making, they must also accept the consequences”

The Irish taxpayer did not share in the decision making of private banking and regulation of finance markets. Technically, the central bank and the regulator are independent agencies that are free from political influence. If we are to follow through on this argument then the ECB is directly accountable to European citizens and operates according to what citizens want.

The Irish electorate was bought with low taxes. This is true. Every election from 1997 was in effect a tax auction – who could offer the lowest. The electorate are responsible for voting in a right of centre liberal market government that espoused the low tax, minimal regulation model (as did the media and a significant section of academia).

But, to jump from this valid statement to the conclusion that the Irish electorate are responsible (as taxpayers) for the specific decisions that took place in private firms (banks as buyers and sellers of money) in a private market (that is so complex that most people know little or nothing about it) that was ‘regulated’ by unaccountable bureaucrats is not only logically incorrect but ridiculous.

The whole argument is based on a completely abstract idea of a ‘perfectly informed rational voter’. The voter has an incentive to vote for more or less regulation given a certain set of conditions. The conditions enabled a fully informed rational vote for supporting flexible financial regulation. Nonsense. I would be surprised if 1 percent of the electorate voted for their party (or individual) preference on the basis on how the finance market benefits them.

Poorly managed banks (as firms) that go out of business should be allowed to fail. This is what a market economy would look like. However, we don’t live in a market economy. We live in a socio-economic system called capitalism. You cannot model this on the basis of perfectly informed rational consumers or voters because it is premised on structural relationships that involve power.

The conclusion that transnational supervision across the Euro area is the most prudential way forward is correct. The ECB and all member states in the Euro area should have recognised this 12 years ago. They did not. To engage in a post hoc analysis and argue “responsibility was national but it should have been European, but given it was national – you have to pay the bill” is just lazy thinking. To then argue “don’t complain” is just provocative.

The people are not to blame nor are they accountable for the reckless behaviour of private banks and the flawed design of the Eurozone. If this is the lazy analysis informing ECB policy on who is responsible for the crisis and how to get out if it (i.e. blame the people not the finance system) we should be all very very worried.

@Brian Lucey,

…”He is a grown up adult. We took this responsibility : many of us cried foul….”

But you did nt cry foul during the boom ,its easy to be wise after the event .
In fact you were a paid shill for the mortgage industry who were peddling 100% mortgages and you predicted further growth in the Irish property industry as late as 2005.
Your ‘research’ as a PHD lecturer in Trinity college economics department makes about as much sense as statements by LBS.

Whats troubling is you were a public servant paid in part by the taxpayer when you also propogandised for the mortgage industry.Maybe you consider your report in 2005 as research.Downstream we the taxpayers are paying for the rot you were a contributor to.
There are many people suffering in Ireland who bought property innocently based in part on the advice peddled by you and others.

He says “recent events have shown that, as long as the accountability of supervisors to taxpayers is primarily a national affair, and discretion in the implementation of national financial regulations and supervision is allowed, then there is a high risk that taxpayers will foot most of the bill”.

The Irish Central Bank and European Central Bank have lent the main Irish banks about €180 billion at a mere 1% interest rate to help address short-term liquidity problems caused by a flight of deposits. This is additional to the hundred billion of bonds which EU banks acquired over the past decade to help fuel the Irish lending boom and which are now being repaid effectively by Irish taxpayers (rather than by the issuing banks).

Why did the ECB and the National Central Banks allow this situation to develop and have they no responsibility for this? It appears that they were all “asleep at the wheel” alongside the Irish Financial Regulator and Central Bank. Wake up LBS and J-CT and start accepting some responsibilty and pain.

There is a structural problem with the Euro – it treats goverment debt as if it was radioactive poison yet it was the yield chasing activity of the banks in the commercial credit money sphere that was at the heart of the euro crisis and the strong dollar policey / low fiscal debt of the Clinton years which created this final crisis in this present monetory system

This is at the core of the crisis – the banks chased high yield instead of low returns.
People need to understand that a significant amount of goverment debt is needed in a MMT world.
The euro has free floating Gold on its balance sheet yet it refuses to recognize reality by expanding its balance sheet through goverment debt purchase as this would dislodge the dollar from its reserve perch instigating geopolitical chaos for perhaps a small period.

Now the euro masters wish to continue a policey of artificially high rates on peripheral sov debt as sov debt real or negative returns is closely linked to the gold price.
Low yields on sov debt would push various players towards Gold under these conditions
This crisis is simply a Gold crisis – the ECB is now deeply dysfunctional – it perhaps has various views but it is by and large a creature of the BIS.
The Dollar/IMF crowd or the ECB /BIS – some choice for the poor Irish

The euro needs to believe in the power of its balance sheet and recapitalise the system or it is dead as a dodo – these sov mind games that it plays are reducing the efficiency of large sections of the euro economy dramatically as paper is hoarded reducing the medium of exchange function of money.

And yet we continue to blame ourselves ? – we are but a island village turned into a battlefield

@Financiall Times sub-Editor

My condolences – and my gratitute for all the Lorenzian waffle that you almost certainly cut …..

@Dear Lorenzo Bini-Smaghi

Capital … er … flows. It flows Lorenzo, and you and your colleagues in the ECB sat, and sat, and sat, and smiled at all those ‘dodgy capital flows’ …. and you did … er .. nothing.


Now Dear Lorenzo, The Irish will DEFAULT, and we regret to state the obvious – but due to your ineptitude – looks like ECB, rather than the private financial system, will be main creditor.

“[YOU] should not complain when it actually happens”.

Might I humbly recommend the Trappist Monastery in Bobbio for the cure, and the recuperation.

Yes, LBS, every single Irish person was aware of and in on the massive financial sector party that was going on and now they have to pay the consequences of not being more gung-ho for further integration of financial sector regulation at the EU level. They all knew exactly what they were getting into and what the appointees of the Government would do at every turn.


LBS’s view of voters having to take the pain is fair enough as far as it goes. But it is shamefully simplisitic to distill the Irish crisis to the argument that voters chose to take on precisely these risks and should now pay. I think most readers of this site would agree that the Irish problem has many dimensions. There were failures at many levels: central government fiscal policy, regulation, banking culture and corporate governance, planning at local and national level to name but a few.

Our political elite generally, the party system, and the oireachtas all let us down. The problem was never solely a question of voters making a poor choice in 1997 or 2002 which resulted in terrible governance. There was terrible governance and voters had chosen their representatives, but that is only one aspect of the problem. I think in many ways our immature, parochial, and sometimes childish attitudes in relation to who should represent us is very near the core of our political problem. This is not the same as saying we deliberately took a risk with the bubble, hoped it would pay off and that we, as voters and taxpayers, would be unscathed. Very view voters would have had corporate governance, banking policy, regulation or planning at the top of their agendas.

On top of all of this there is the very obvious failure at european level. In short, LBS’s short piece is not terribly insightful – other than it illustrates that some very important players in our future wellbeing have very narrow minds.

I didn’t know that Irish banks have a special tax rate and that Irish bank profits fuelled the exchequer during the boom years but he’s a big shot at the ECB so he must know, right?

@ All

Maybe we’re not giving enough credit to LBS here – the ECB council is made up of smart people with access to the internet/Patrick Honohan so he must know how incendiary a piece like this could be. Perhaps this is all part of a short con to try and catch us off guard to fall for the ECB’s long con…

It’s clear that the ECB has been doing everything recently within its power to aggravate the Irish people – a nation with a history of rejecting European treaties and an out-sized diaspora of voters in the US. It’s almost as if they want us to tell 2/3 of the troika where to shove it and go it alone with the IMF.

The ECB has never been comfortable with having to deal with this peripheral mess, if they could only pass us off to the IMF in a way that looks to Germany like they did their best, then they could go back to their core job of being ineffectual regulators and varying the base rate to suit German manufacturers.

Since these supra-national institutions have now resorted to playing good cop / bad cop, I say we surrender to their wishes and go exclusively with the good cop.

@ David McConnell
Many thanks for the link to the FT article. It is much better written and relevant than the other one.
We really must become much more dismissive of people who don’t know what they’re talking about. We have a really bad habit in this country of assuming greater expertise in those that come from abroad – I suppose it’s an inferiority complex from colonization and then Church Rule.

Lorenzo Bin Smuggi knows as much about economics as my bin man. He f seeks success as the protege of Cardinal Trichetleu in a Eurocracy governed by immensely mediocre civil servants and politicians.

The IMF isn’t much better. It botches most things up and was completely blind to the bubble. In fact, on an individual basis we could all sue them for their appalling analysis of the Irish situation prior to the crash. In 2007 they stated:
“Economic performance remains very strong, supported by SOUND policies. Given the Irish economy’s strong fundamentals and the authorities’ commitement to sound policies, Directors expected economic growth to remain robust over the medium term” and the Mr Barroso said that we were operating “responsible fiscal policy” in 2007.

We are devoting too much time to these clowns. I would love to see more on energy independence – because if we got that sorted we could really give them the two fingers

@Sarah Carey,

You’re right to bring in the political dimension. Dr. Bini-Smaghi is, very clumsily, making an important point about failures of democratic governance in the peripherals. But he undermines himself by failing to acknowledge the equally serious deficit in democratic governance in the EU under which he and his ECB colleagues are labouring.

I’m trying to shift the focus, initially, onto the economics (with, not surprisingly, few takers – it takes little effort to rant and score cheap points) with a view to framing this very neccesary engagement on institutional reform.

On voter choices, what struck me in the last election was the fact that FF garnered almost 400,000 first preferences. A few thousand votes and transfers here and there and they could have held 11 seats that FG gained and both parties would have head seat totals proportional to their first preference votes. And in 2007, as Prof. Honohan noted in one of his speeches when visiting China, both FG and Labour were beating up on FF for not being even more generous with the bubble largesse.

So I think the penitence may be more widespread than FF. But it hasn’t been transformed into a resolve to minimise the chances of the clowns screwing up again.

All we seem to have now is;
with vague notions about a Citizens’ Assembly. It doesn’t seem to have been picked up in the mainstream media, but I doubt it will have much impact.

@Paul Hunt
“We might also be able to figure out what’s bugging Dr. Bini-Smaghi. (I suspect how the expansive ECB liquidity support will be unwound is worrying him. The ECB doesn’t have the kind of Tier 1 capital that it wants other banks to have to absorb any losses that might come its way.)”

With all those dodgy bits of paper “assets” maybe they should be subjected to a stress test.
It is not very long ago they raised additional capital – maybe it is all gone.

@ Paul Hunt
You’re leading a government. Your people are happy with you. The IMF are happy with you. The European Commision are generally happy with you. The world is happy with you. It’s hard to think you’re doing anything wrong isn’t it!


In the absence of a legally enforceable guarantee a state should not bear the burden of bailing of private creditors – irrespective of whether a failure is systemic and irrespective of whether they are domestic or foreign investors. The state may choose to bail out these creditors if it decides it is in its interests to do so.

If a creditor has a cause of action and legal remedy against a regulator let him bring an action in the courts and seek redress. Good luck to him – he’ll need it! In the absence of such a remedy the state has no, zero, zip, nada, nothing in terms of a legal obligation to private creditors.

Look at what he does in this passage – he just states as fact that in a systemic crisis teh state has obligations to repay creditors – but this is utter nonsense

“Irish taxpayers, for instance, now find themselves faced with both the collapse of tax revenues and the losses incurred by the banks themselves. In principle, the costs of restructuring these banks should mainly be passed on to shareholders and managers, and thus subsequently on to bondholders.

Now he says

“Only in a systemic crisis should taxpayers be involved.”

But why? to save the system? the system should be saved by debt to equity swaps or write downs on debt. obviously. I mean talk about moral hazard! this is an ecb executive council member saying that in a systemic crisis a state should bail out private creditors!!!!!! Then he goes on to say

“The question is, how should we judge if a crisis is truly systemic, and therefore whether taxpayers should rightly bear some of the costs of resolving the situation?”

This question is nonsense! taxpayers near the cost if they are legally obliged to do so – then and only then should they bear the cost

Moreover, it is extraordinary to see a member of the ECB executive council speaking this way. This guy is an unelected technocrat who I suspect is acting and speaking well outside his remit. I’ll have a look at the constituent treaty articles and regulations to see if my suspicions are in any way well founded.

How did the ECB come to a view on these issues? Was there a vote? Didi they issue an opinion to act as advice to euro member states? What role does the ECB play in the troika? Why are they involved beyond an advisory capacity?


I take your point, but, knowing what we know now, surely the focus should be on the reform of institutions and procedures (both here and throughout the EU) to ensure we never have to inhabit this Neocon fantasyland again.

I literally think this guy should resign on the foot of this article – its utter bull****

Do these guys even do proper questions and answers with journalists – can this guy be quizzed on his views and asked to explain and justify them? Is this what passes for a considered view at the ECB?

What on earth is Lorenzo Bini Smaghi talking about? This crisis resulted 99 percent because the Basel Committee diluted the basic capital requirements for banks by arbitrarily establishing some minimalistic risk-weights based on the information provided by the credit rating agencies, even though this information had already been cleared for in the market. What representation did Ireland have in such foolish decisions of a global rule setting body?

Mr Bini talks also about “accountability” and I just have to ask him where there is any sign of the Basel Committee being held accountable. From what we see, after failing so utterly with Basel II, they are now happily proceeding to dig us even deeper into the ground with Basel III as if nothing happened with their principal regulatory paradigm.

@ Paul Hunt
I think the focus must be a)on solving the current problem and then b) ensuring that it does not happen again.
Would welcome more debate on the benefits of increased regulation here too. I think we should do no more and no less than the UK. Too much and we stifle competitive advantage. And I wonder if its possible for financial institutions to set up here which are not regulated by any financial regulator? They wouldn’t deal with Irish assets but caveat emptor and all of that.


I take the view that finance should be the maid servant of productive activity – and not its imperious mistress. The UK economy had become – and to an extent still is – dangerously unbalanced. And I suspect Chancellor Merkel’s desire to kick-back at global financial capitalism is motivated by anger at the damage it has done to her Rhineland Capitalism model. Time, perhaps, to think about aligning economic value with human values?

@Seamus Coffey

Once the bondholders are gone it will be the remaining parties will be the State, the depositors and the ECB. Who will have “to share the blame” then?

The way this guy is going, I suggest the ECB, particularly if he is still on the board.

@Cliff Taylor

It is quite unbelievable that an ECB executive board member could write so incoherently. Feel sorry for the poor sub-editor who had to write the headline.

Spot on.
Apart from his usual cut off the Irish, it is an incoherent and self contradictory article. What does anyone make of this:

If the decision on whether a crisis is systemic or not is in the hands of the authorities of the country where the troubled banks are located, their authorities will have an incentive to underestimate the systemic dimension of the crisis, and thus shift the burden to other European taxpayers.

Surely contradictory nonsense.

But Mr LBS, on behalf of the ERCB, cleverly leaves the door open for other countries to sting bondholders, provided those countries are not Irish who deserve everything we can throw at them. Plus some more.

It is said that Gladstone was one of the first UK politicians to warn against the long term political effect of hundreds of thousands of Irish leaving Ireland after the famine and taking with them generational hatreds of British rule.

LBS, the ECB and Co are likewise sowing the seeds of the destruction of Europe Union. And sowing them with gusto.

@Ceteris Paribus
‘Consistent within the year at least’ would be more accurate – see my earlier post about his view on Ireland’s success in 2007.

Lorenzo is grumpy because the Irish are keeping him on his toes.

“Policy makers in the 1930s had it easier, complained Lorenzo Bini Smaghi of the European Central Bank’s executive board.

“Now we can’t afford to go on cruises,” he said, noting that some of his predecessors were able to do just that during the runup to the Great Depression.”

Could we raise the fare and send him on one?

Is the logical conclusion of the LBS argument that only people who could vote for most of the period in question or indeed profited directly from the boom should consider this debt?

On that point who would bear more responsibility for governmental mistakes, the people who elected them or the people who kept giving them and the banking system they were not regulating money?

Some consolation from the IMF

per RTE

“The IMF said Europe would not escape a restructuring of failing banks and a recapitalisation of viable banks. ‘But it is likely that some of the capital will need to come from public sources,’ the report said.

The IMF said banks worldwide faced ‘a wall of maturing debt’, with $3.6 trillion due to be repaid over the next two years. Bank debt rollover requirements are most acute for Irish and German banks, the IMF said.”


It’s my understanding that the IMF always believed in burden sharing but were outgunned by the EU/ECB.


“Lorenzo is grumpy because the Irish are keeping him on his toes.”

That is defamatory.

@Mr. Bond


I’ve never seen how this stands up. (I know you’re just reporting Kenny here, not endorsing what he said.) I mean, I obviously support the government’s intention to burn Anglo and INBS seniors and wish them success. But why would burning seniors at a bank like AIB unacceptably undermine EU financial stability while doing the same at an ex-bank like Anglo would not? Surely what matters to potential future bondholders is that Anglo was a bank at the time it was selling senior debt into the market. “No, no, it’s fine! We’ll revoke Commerzbank’s banking license, then you’ll lose half of what you put in.” “Phew, that’s okay! I was worried there for a minute.” Basically the same applies to any current holders who need to keep marking crap bank debt at par and/or who can’t afford to take any losses on their holdings.


We’ll be defaulting whether this chap likes it or not. […] This LBS guy is irrelevant.

Be careful not to give LBS a too little credit. “those taxpayers should, in the first instance, assume responsibility for any failures” – emphasis added. So LBS’ position is in effect that Ireland should be squeezed until the pips squeak, and then other European governments will be obliged to pick up the remaining bill. That second part, less appealing to EU core audiences, is sotto voce, but it’s certainly there.

It s a fantastical failure to face up to the fact that banks can go bust, or very nearly, (and that expensive recapitalisations can be necessary) without there being a scapegoat that is either no longer part of the system or is shortly not going to be part of it.

Hence it was all the fault of the Irish regulator, and any cost must be ringfenced to within that country. He has this view because he is at the ECB.

Maybe if we took the approach of admitting we badly f**ked up (sorry jane!), that we lost the run of ourselves completely, that all our senior people in government, regulation and banking were beyond incompetent and that we are entirely at fault for the mess we are in…then we might get some proper help and assistance from those who have helped us most generously in the past…..rather than this “yeah well, ye are as much at fault for this as we are” tactic. how can blaming them, and asking for help at the same time be a wise approach??! for me it’s either eat colossal amounts of humble pie and put the cap in hand, or head off on our own into the atlantic…2 fingers to the lot of them…..ah lord, that second one is so tempting too

I read the article completely differently. The core of it is: Europe / the Eurozone has to clean up the mess, therefore this is a strong argument for supranational regulation, otherwise you end up suffering these externalities. No bailout without regulatory oversight. It’s hard to disagree with this.

THe rest is just a few harsh words indicative of the low esteem Ireland is held in in official Europe…and why not: to us it may be home, Mammy, Guinness, GAA, The Late, Late Show, etc, but to the average European policymaker, Ireland is little more than a headache, a bunch of incompetent chancers who can’t handle their own affairs, voted themselves rich, and now want to stick Europe with the bill. Now in fairness, if your only contact with Ireland had been Biffo / BLTD / Patrick Neary etc for the last x years, you’d probably have formed an extraordinarily dim view too, and a concomitant view of the people who voted for them…


Immediate retraction-sorry.

Lorenzo being a Florentine needs careful watching. Maybe he will end up like his mentor.

Beyond Bini Smaghi who may well enjoy being a piñata, anyone who bothers to read the IMF’s Fiscal Monitor will see that the public debts of several developed countries have jumped during the recession despite having had prudent banks.

So many could claim victimhood as a result of the fallout of the Great Recession.

Our banking crash has been severe because the boom was such a madhatters’ party.

Nobody warned us with credit growing at 30% and so on!!

Then the ‘cute hoor’ guarantee was the stroke of all strokes; Deposits would flow into Ireland as a result of the ‘masterstroke’ and Fingleton’s son left the cat out of the bag but that was the official sentiment.

Funny isn’t it if it was doing Trichet’s work, that nobody crosschecked with him.

It wasn’t until Oct 2008 that the Ecofin set in train some principles on systemic banks.

So we’re part of a currency union that has a policy that doesn’t suit now.

Nobody supports debt restructuring at this stage in the Eurogroup council of Eurozone finance ministers, the Finnish finance minister Jyri Katainen recently said.

“It doesn’t make any sense to me that countries, that have managed their finances poorly, would be told that they don’t have to pay off their debts.

An Irish finance minister would be under pressure to make a similar statement, if the Irish boot was on the other foot.

We did receive cash aid of about €55bn in today’s money from the EU over the years. We have yet to pay a cent towards the running of the EU.

We were mainly responsible for blowing it and much more.

And to cap it all, there isn’t a huge constituency for radical change of a banjaxed culture and governance system that brought us to this sorry pass.

@ The Other Andrew

Agreed, that is certainly the perception of Ireland in Europe at the moment and for good reason. But, I am quite glad to be in position where you can challenge Irish public policy with fellow Europeans and not get the ‘but you have never had it so good’ reaction. This was hard to do over the past few years given our largely uncritical media and political opposition (of course, there were a some voices of reason). So, I would add a large section of the Irish corporate and media elite to the Biffo/BLTD/ Patrick Neary mix that has led to such a cautious and dim view of Ireland (i.e. bunch of chancers).

However, it is one thing to justly hold a country in low esteem and quite another to argue that the electorate/taxpayer are to blame for the reckless behaviour of private market actors.

Now that you all have that off your collective chests, I have a front row seat with a large box of popcorn (buttered!) and look forward to watching Ireland bullshit its way out of this mess, the leprachan logic will finally meet its inevitable end in a world were adults are responsible for the consequences of taking their eyes off the road.
The sum total conclusion of all the guru’s on this is to blame someone else, well the people you are blaming will be paying our bills for the next 10 years…reminds me of the life of Brian and Romans….is Loremzo the new Travellion…its embarasing to be Irish

Was anyone expecting LBS to say anything different ? BLTD guaranteed the banks and there is a huge wall of bank debt that needs refinancing. And the name of the game is power.

Is LBS going to turn around and say “actually, you know what, we were wrong, here’s €40bn back ?

Fiscal debt is a illusion – its the money that you may decide to stick a interest rate on or not – it ain’t debt.
It may sometimes be necessary to add on a high interest rate on to stop inflation from getting out of hand but back in the days of the punt there was no essential difference between a pound note and a post office bond.
Private debt is debt that may be paid or defaulted on.
Why cannot economists get this simple fact correct.
The ECB has bambozoled the paddies.
We are not that bright it seems.

A bit late in the day:

It might be worth teasing apart the question of who are the taxpayers, and what is their responsibility for state activity?

The article begins:

“The principle of “no taxation without representation” should work both ways. If taxpayers have the right to share in decision-making, they must also accept the consequences.”

Do taxpayers gain the right to share in decision makings? For example, Google is a taxpayer in Ireland, Mercedes in Germany, Noikia in Finland (I think). How do these groups have a say in decision making in their respective countries or at European level? The assumption seems to be that taxpayers do have a share in decision making, and that decision making refers government policy. I can think of ways Google might have such influence, but not through one adult one vote anyway.

Later the article says:

“In a closed economy, taxpayers invest their savings in domestic financial instruments.”

But corporate taxpayers don’t necessarily do this. Only if the closed economy is non-national, for example, the world.

Bluntly, I think this article wilfully confuses “taxpayers”, with individual human taxpayers (only a fraction of the source of tax revenue to governments), with citizens, with all people (including children for example), with the particular citizens/institutions living/functioning in a state.

It is an example of rhetoric. It’s worth thinking more about what this rhetoric is designed to achieve.

Lorenzo Bini Smaghi hit a sore nerve with his arrogant comments that Irish taxpayers should not complain about having to bailout banks. Hypocritically he says this is because we elected our government and yet he implicitly admits that regulation was absent in Europe (“regulation should now be steered at a European level”).

Nowhere do I remember voting for a system of private profit and public insurance of private losses.

The numbers are so large as to be almost incomprehensible – we can just about grasp the scale of the Japanese earthquake disaster from the footage and photographs. The Wall street Journal reports that the cost is likely to be between $200bn & $300bn. Our likely bank bill is going to be greater than $100bn. This is staggering and there is no way that a small population of 4 million can bear this… Japan has 125 million people.
Another way of thinking about these numbers is that it is a billion minutes ago the Roman Empire was flourishing in the 1st century.

Maybe our new Government is overwhelmed by the situation and has capitulated to Mr. Smaghi and co. … We should face up to this; we cannot hope to service or pay off this level of debt. We need a fully transparent audit of what originated as private debt and what is public, clearly explained to us as soon as possible. The private debt should then be restructured and a percentage paid back in say, a billion seconds (approximately 33 years).

It seems that as the Eurocrats have a low opinion of Ireland and we are all agreed that it has some foundation then maybe it is time to invite them over and show them what all their subsidies have bought and how Ireland has made a huge leap from the fifties? Then tell them that if we carry on with the bizarre banking policy of insisting on a huge contraction in the local money supply through bank deleveraging and imposing a fiscal squeeze at the same time then we will be back to the fifties again. Then we’ll be demanding massive structural funds again and not loans.

@ Michael H

‘And to cap it all, there isn’t a huge constituency for radical change of a banjaxed culture and governance system that brought us to this sorry pass’

The pass is getting sorrier, and Ireland is going to be unrecognisable in a few years. It’s a question of what to try to preserve and what to let go. The ground under LBS is not as solid as he seems to think either.

@Michael Hennigan

We were mainly responsible for blowing it and much more.

And to cap it all, there isn’t a huge constituency for radical change of a banjaxed culture and governance system that brought us to this sorry pass.

There are a few seperate issues here that are being conflated.

1. There is an absolute need for for a radical change in a “banjaxed culture” (and indeed also in the bankjaked culture) and as you point out little sign of willingness to change.
2. The dreadful initial mistake of loading private bank debts onto the Irish public purse.
3. The very public stance taken by the EU and ECB, to stretch the Irish wrack to the limit, the Irish initially having mistaken the wrack for a oversized skipping robe.
4. The almost 100% certainty that the pursuit of this EU/ECB stance will result in continued destruction of peoples lives, livelihoods, emigration and ultimate default.

The Beni Smaghi and increasingly your approach seems to be that the Irish are 100% responsible for their overpaid public sector. They are. That the Irish are 100% to blame for the initial bubble. They were. That the Irish are 100% responsible for the bank guarantee. Some were. That the Irish are 100% responsible for the decision to continue to pay bondholders. This is largely an ECB imposition. And therefore because of these issues the Irish feet must be held to the fire, even if its results in crippling the them.

But even if the essential radical change to the public sector was effected, would the ECB/ EU change their stance one iota on the bondholder issue. I think not. And it is now far too late re bank bondholders anyway.
But I agree that radical change is still essential and should be done.

But I would not accept the reparations stance being adopted by ECB and would gladly accept an even harsher economic outcome by defaulting on the ECB itself before I would accept the deliberate and continuous humiliation being imposed on the Irish by Beni Smaghi and the ECB.

The bank giveth and the bank taketh away – until you realise that the entire European project has been the pet child of the banks since its inception you will get a skewed notion of events.
Subsidies to possibly militant farmers keeps the poltical classes quiet while this monetory heroin slowly works its magic of transferring allegiance to some higher power above the nation.
The poor fishermen of Ireland who beleived in fate rather then agitation did not have to be bought.
The ECB is simply the purest expression of the monetory powers since the beginning.
Even Congress in the states have nominal control of the base money before the main damage is done via fractional multiplying – the ECB has now even control of the base money.
Simply put – they own you, me and everything else.

@ All

There are a number of points that may be worth considering.

The article is about the division of responsibility between the EU (ECB) and member states in the matter of banking supervision and not about Ireland as suggested by its unfortunate title (no doubt inserted by a sub-editor in a manner which the FT will not find in any way displeasing).

LBS is a serious candidate to head the ECB. No doubt the heads of state and government should consult the various bloggers who have a negative view of him on this blog before reaching their decision, but there it is!

On the substantive point, LBS is correct and the situation has not been greatly changed by the package in relation to banking supervision which came into force on 1 January this year. The European Systemic Risk Board, for example, chaired by the ECB, does not have the power to take binding decisions although the EU authorities for banking, securities and insurance (all in different capitals) do.

Anonym points out the difficulties with trying to alter the legal situation with regard to bonds simply because the status of the issuer has changed. This would not stand up in court for very long.

The Iceland and Irish situations are not comparable. It would be tedious to list the differnences but let me mention just two (i) Ireland is in the EU and Iceland is not (ii) Ireland is a member of a currency union and Iceland is not.

At this stage, the ECB is clearly exasperated with Ireland, as must also be the IMF, as neither can get a clear statement of the Irish policy position. Insofar as the authorities are concerned, some allowance is probably being made for the fact that a new coalition government has taken office.

Insofar as the commentariat is concerned, those that make sense are like lighthouses in a fog, not that many but clearly visible. Among those I would make particular mention of would be Brendan Keenan who made a point on RTE yesterday that there would in all likelihood come a stage, as has happened with other countries in similar circumstances, that the IMF simply refuses to sign the next cheque. It can hopefully be avoided.

“LBS is a serious candidate to head the ECB”
Says it all really – doesn’t it!


I guess only peasants break the law while our betters can break the rules.

I find the mutation of banks over the centuries from republican agitators to royalist clowns fascinating.
The two churches (IMF/FED , ECB / BIS) are utterly corrupt and corpulent – Why do you want to continue to give tribute to this new Rome.
It is no longer a center of Empire – its just a tourist attraction now.
Their power while devastating is manifestly unjust.

Do you fear another Cathar Crusade ?


“Among those I would make particular mention of would be Brendan Keenan who made a point on RTE yesterday that there would in all likelihood come a stage, as has happened with other countries in similar circumstances, that the IMF simply refuses to sign the next cheque. It can hopefully be avoided.”

Unfortunately, some of us might say that hopefully that day has to happen given that no one has any idea how seriously bust is the country. Witness, AIB discussing how much they are going to pay to redundant staff when they don’t have any money anyway, NAMA offering to make loans when they are technically a bankrupt organisation where the value of its liabilities exceed its ‘assets’, County Managers (whatever they are) with days off for horse racing…

“LBS is a serious candidate to head the ECB”

therefore he must be willing to act immorally; being concerned with his reputation while preparing to build an enduring structure.

“LBS is a serious candidate to head the ECB”
Says it all really – doesn’t it!

To be fair, not even the ECB is quite that bad. Sez Reuters:

“Apart from Draghi, the 63-year old head of the Bank of Italy, other contenders include Finnish central bank chief Erkki Liikanen, Yves Mersch of Luxembourg, Dutch central bank chief Nout Wellink and Klaus Regling, a German who runs the euro zone’s rescue fund, the European Financial Stability Facility.”


If LBS was trying to make a very broad point about the responsibilities of the ECB and member states then he did a phenomenal job of disguising that by mentioning Ireland specifically and by referring to unique situations which are applicable currently only to Ireland. Which other tax payers are being asked to “foot most of the bill” for lax supervision and “complain[ing] when it actually happens”? Certainly not the Germans, as the ECB has made sure that they will see the return of every penny of the €50bn they injected into their banks.

As for the IMF refusing to sign the next cheque, I dearly hope for the sake of the Irish people that they do this and put the country on a sustainable course. Unlike the ECB, the IMF has plenty of experience with debt crises and knows the difference between a liquidity and a solvency problem. I trust them to do the right thing ahead of the Eurocrats or our Government.

@ Joseph Ryan

This year current spending will be greater than last year’s outturn and the budget deficit at above €18bn will likely be higher.

As for the issue of private and public debts, several countries put money in their financial firms; in the US, there has been controversy about Goldman Sachs and others not being forced to take haircuts on money owed by AIG but Paulson and Geithner make the point that when you have a serious problem it’s diffiicult to get all the issues in alignment.

The problem with Ireland was that a blanket guarantee was given in respect of the whole system restricting flexibility and cost control in respect of swift handling of defunct institutions.

What’s the value of ECB support for the banks at a low interest rate; how worse would the recession be for the private sector if all the banks were let collapse?

There’s a strong whiff of post hoc propter hoc off Bini Smaghi. The ECB forced the Irish state to take on liability for vast private debts. They can’t possibly have done so other than for a reason of high principle. This is the only arguable reason of high principle that comes to hand that is consistent with German plans to burn bondholders post 2013. Therefore it must be true.

That it clearly had nothing to do with high principle, and everything to do with the combination of an initial insane policy choice by an Irish government and the subsequent application of the modern equivalent of gunboat diplomacy by the ECB can’t be admitted.


Very much so, except that I’d expect Bini Smaghi’s not too worried about being compatible with the promises of post-2013 default, since he’s a vocal critic of those. Also, it’s not clear to what extent the ECB had a hand in the Irish government’s initial insane decision, and to what extent it quietly approved from afar.

@ Edward

I agree with you on this point. But the explanation, it seems to me, is that LBS was underlining to the City that you cannot run with the hare and hunt with the hounds as Ireland has been trying to do with the IFSC.

The article is very subtle, especially in the distinctions it draws between what might be decided by the EU27 (to involve the UK) and what might be agreed by the eurogroup (17 member counties).

The odd man out in the EU is the UK. Nothing very new there! But the euro is strengthening both in relation to Sterling and the dollar.

In deciding the road ahead, policy makers and opinion formers in Ireland must set themselves in this broader context. Their record to date is miserable. And there must be an end to domestic kite flying or we will all end up like Charlie Brown.

P.S. It would be a help if the Minister foir Finance and the Governor of the Central Bank might occasionaly agree.

Not so quiet now….
If the ECB beleived in its own creed it would have declared back in 2008 that Ireland would break the fiscal rules of the monetory union if it continued to persue its policey of bailing out the banks.
The fiscal rules of the past are of course clearly absurd – but their functionality in the real world was not their goal.
The fiscal rules were merely a mechanism to maximise banks profits at the expense of the real economy – nothing more.

When the banks got in trouble it was nessary to change the doctrine – remember these cardinals do not believe their own BullS$£t.
When the core banks were safe again it was appropriate to destroy the peripheral European economy again.
A Churches power lies with blind faith, not logic.
Although this Faith and Money can motivate entire armies of academics , media types and other opinion formers.

And you thought the IMF were the bad guys.


Does anyone remember what an SSIA was? Or Benchmarking or welfare rises and income tax cuts above inflation or Low corporation tax. Where do all you folk think the money came from? Denial is a terrible affliction.

Irish Income tax and social charges are still below the European norm and Irish welfare rates are still higher- go see OECD wages and benefit calculator.

Irish Corpo tax rates should be raised to 16% and stop whoring ourselves to every corporation – it is making us fat and lazy.

If we had Danish tax rates and welfare rates as well as Danish Public service salaries we would square this mess in 3 years.

These Euro boys see us as spoilt brats who want their workers to pay for our Lifestyle.

Remember as the Germans had to pay the price for electing the Nazis we have to pay the price for electing FF.

Wait a minute the Germans didn’t pay any price … they got Marshall aid at 2%…. as did the Italians….AAAH!!!

Now Off to buy some Anglo unguaranteed senior debt trading at 20% face knowing full well the FG/Labour have not got a set of B***s between them and will redeem them in full.

After much thought I must admit LBS has a point. Ireland did vote in Bertie et al in vast numbers. Then again they voted for Berlisconi more than once. Pride before a fall?

FF had to spend the money – why , because you cannot have negative fiscal debt.
The Goverment was a passenger on private credit creation – Governments are essentially irrelevant now as they have no power.
You see under the present system fiscal debt regulates demand and is not real debt – Ireland and other countries were denied any power in the monetory sphere.
The Euro structure is fatally flawed , perhaps deliberately so – to instigate a great crisis.
Its role was a dollar killer – we are merely the casualties of this war


Insofar as the commentariat is concerned, those that make sense are like lighthouses in a fog, not that many but clearly visible.

Of course, those lighthouses of insight that shine wisdom through the fog of populism and foolish obstinacy, men such as eminent economist Brendan Keenan. A giant among journalists, a towering intellect and an employee of greatest living non tax resident Irish man Tony O’Reilly.

Mr Keenan’s most remarkable quality is that he is one of the ever diminishing number of people who shares your opinion on how the banking crisis should have been approached, the apportioning of responsibility for same and whether we should put the interests of the current configuration of the European financial system ahead of Ireland’s.

There are no Nobel prize winners for the ECB line, precious few Irish academics (even those who might formerly have given the PDs a preference) and the few journalists who do support it would have a natural sympathy for the state withering away to feed capitalism.

Still, though it may be a lonely life siding with a currency against a people, I am sure the rewards are satisfactory.


What’s the value of ECB support for the banks at a low interest rate; how worse would the recession be for the private sector if all the banks were let collapse?

It would have been very bad. And the effect on the whole economy would have been very bad. As bad as it currently is? I doubt it.
But it would have been far better to let banks collapse as Iceland did. Instead of owing the ECB and CR €150bl, we would owe them close to nothing. The bondholders would have had to take the large hit and maybe some depositors too. The depositors make up a very small percentage of the population. And many small depositors would forego some of their deposits if it got them to a position of a returned income stream from employment.

Personally I think the reason we continued to pay the bank holders was an implicit (if not explicit) threat from the ECB/German/French alliance to euro bomb us back to the economic stone age.
The problem is that too many Irish were too comfortable and too scared to take it on.
However even Honohan admitted in a recent interview that ‘if we knew then, what we know now’….like the old Kenny Rodgers song.
Honohan was and is very much against a tough approach with bondholders, but Honahan woyld be risking a €350,000? salary!! Not to be trifled with. I wonder how these people can talk about competitiveness with a straight face.

However, we are in agreement on the imperative of public sector reform.
Personally I would start at €50,000, taking 10% reductions on the next €10,000, 20% on the next €10,000 until I got to maximum of around €150,000, with concomitant reductions in pensions.
That would be a good start. It would have the added attraction of a very low negative multiplier effect, as these people save most of the surplus income.
Now those savings would generate a nice job stimulus budget!!!
Any chance?

@ Shay Begorrah

All very admirable sentiments but where does it get us?

I have no better view of the future than you have but there is one thing that I do know and that is how to judge an argument on its merits and not to question the bona fides of those that advance it.

As to the “ever diminishing number of people who share my opinion”, let us agree that the future will, in fact, decide.

@shay begorrah

a lot of food for thought but one major problem
we dont do radical

too many vested parties put their own interests ahead of the good of the country ff politicians ,higher civil service,public sector unions ,ibec,ECB,banks,bondholders ,irish central bank ,ect,ect
nobody looking out for the ordinary people

soverign default just at matter of time

@Joseph R
All very sensible and admirable. But it wont happen. Too many people at the top of the civil servant tree (the 600 of infamy) would be too adversly affected. These are the L’Oreal brigade.
We are, as Lear said “bound upon a wheel of fire and must stay the course”.

@The Dork of Cork
“FF had to spend the money – why , because you cannot have negative fiscal debt.”
I presume you are being facetious?

“However, we are in agreement on the imperative of public sector reform.
Personally I would start at €50,000, taking 10% reductions on the next €10,000, 20% on the next €10,000 until I got to maximum of around €150,000, with concomitant reductions in pensions.”

@Joseph Ryan this is a typical. Some states that they are in favour of public sector reform, then go on to propose a half baked approach that is the opposite of reform. It is not reform to using an arithmetic formula to adjust salaries; a formula that takes no account of the nature of the job, of the salaries of similar private sector jobs, of the pay increases paid in recent years, of the supply and demand for the skills in question or the salaries paid in other places for these skills. Instead it blithely ignores the detail in way worthy of Bertie Aherne. Why say that salaries below 50,000 should not be affected, the CSO studies showed that it was unskilled individuals who enjoyed the highest premium in public employment. As for the stimulus affects of this more than 50% of the “saving” would be lost in income tax, pension levy and the like.

IMF Global Financial Stability Report


“These investor concerns, along with the prospect
of increased requirements under Basel III for stable
funding sources, are prompting some European
banks to issue longer-term debt, such as covered
bonds. Although useful as an additional means of
raising funds privately, covered bonds effectively
subordinate senior unsecured funding, making it
even less attractive to investors.”

But hang on a mo. I thought there was “no appetite for haircutting of senior unsecureds” and because of this lack of appetite, it could not happen. Those IMF dudes just don’t seem to understand banking finance at all.

A further interesting contribution from Anatole Kaletsky in today’s (London) Times, have included whole article rather than a link, as the Times site has a paywall;

Like Iceland, Ireland can refuse to pay up

Anatole Kaletsky

April 13 2011

It is in our long-term interest to get the best value from countries deep in debt. So let them go bankrupt.

Two months ago I started an article on this page with a joke about two bankrupt countries, a joke that has suddenly become even more relevant than I expected, after the people of Iceland voted by a 60-40 margin to repudiate the debt deal that their Government had painstakingly negotiated with Britain and the Netherlands.

What was the difference between Ireland and Iceland, I asked? One consonant and about six months.

The link between the economic fates of these two tiny North Atlantic countries should be no laughing matter either for financial markets or politicians in Europe — and perhaps across the world. The Icelandic voters’ overwhelming rejection of a deal to settle the banking losses created in Britain and the Netherlands by the collapse of Icelandic banks during the 2008 financial crisis is likely to inspire demands for a similar referendum in Ireland, a country with a strong constitutional tradition of referendums on all sorts of issues, ranging from the revision of EU treaties to abortion, child protection and even competition policy.

The possibility of an Irish debt referendum is dismissed by European financial authorities as completely fantastic, in much the same way that the suggestion of government defaults in Greece and Portugal used to be ridiculed as “science fiction”. One is told that Ireland, unlike Iceland, is a member of the European Union and the euro. It has already committed itself to a long-term bailout. The Irish people had a chance to pass judgment on this plan at their recent general election and chose politicians who were as committed to the European financial protectorate as those who were ignominiously voted out.

Most importantly, the Irish are told that There Is No Alternative (Tina). To follow Iceland would be an act of economic suicide and national humiliation, other European countries would retaliate, the ECB would withdraw support for Irish banks — the country might even be expelled from the EU.

But will Tina intimidate Irish public opinion for ever? Tina was a favourite slogan of Margaret Thatcher, but it has been used by all governments on the brink of devaluations, defaults and U-turns. Events in Iceland should logically revive the democratic and nationalist forces demanding a referendum in Ireland.

The per capita debt burden of €20,000 imposed by the EU on Ireland is almost double the estimated debt of €12,000 rejected by Iceland. Indeed, Ireland’s debt now appears to be bigger, in relation to its economy, than the reparations imposed on Germany after the First World War. When this comparison was recently suggested at a gathering of economists, a German banker indignantly riposted: “But let us not forget that the Irish debts were different from the Versailles reparations: they were the consequence of genuine financial sins.” Everyone round the table drew breath as the banker suddenly realised what he had implied.

In short, the permanent debt burden imposed on the Irish State implies a constraint on political freedom and loss of national sovereignty more serious than those that Ireland initially rejected in the Lisbon treaty.

The people of Iceland had been similarly warned of the impact of rejecting the debt deal, but they nevertheless dared to do this. And within hours of Saturday’s “no” vote it became obvious that the consequences would actually be rather mild.

The British and Dutch governments, instead of imposing new financial sanctions, simply announced that they would now transfer their dispute with Iceland to an obscure European court, the EFTA Tribunal, where a final judgment could not expected for several years. The European Commission, instead of declaring a trade war or threatening to expel Iceland from the European Free Trade Association, merely announced that Iceland’s default would “complicate” negotiations on possible EU membership, a prospect which in any case Icelandic citizens now find less appealing .

Meanwhile, the Icelandic Government, after issuing dark prophecies that a “no” vote would cause Iceland’s volcanoes to erupt in unison, suddenly made an astonishing discovery after the referendum was lost. Having predicted throughout the referendum campaign that the ultimate costs to the nation would be vastly increased if the dispute with Britain and the Netherlands went to court, the Finance Ministry announced on Monday that the country’s obligations were actually much smaller than expected — and indeed that the Government might not end up paying anything, once all the assets and liabilities were added up and offset against one another by the courts.

In fact, Iceland’s experience conforms to a long pattern of government debt restructurings through the ages, from the US states in the 19th century, and Latin America in the 1930s and again in the 1980s, to Poland in the 1980s, Russia in the 1990s, and Greece, Spain and Portugal throughout their histories. The costs of government default have usually turned out to be quite modest — and almost invariably much lower than predicted by creditor countries and banks on the eve of a default.

Financial markets, far from putting defaulters into some kind of economic quarantine or treating them permanently as pariahs, normally resume lending with gusto once an unsustainable burden of national debt has been removed, allowing a country to return to normal financial conditions and economic growth.

In this sense, government defaults through the ages have been similar to corporate bankruptcies in modern times. Since the abolition of debtors’ prisons, the purpose of corporate bankruptcies has not been to punish the profligate or act as a warning to other debtors but rather to extract the greatest possible long-term value from a business that has gone wrong, apportioning the inevitable losses among all stakeholders in a fair and reasonable way. With Ireland, Greece and Portugal now effectively bankrupt — and their debts privately acknowledged by officials at the IMF to be far beyond any plausibly sustainable level — this is clearly the kind of procedure that Europe now requires.

In Iceland, this period of debt servitude now appears to be over and a robust economic recovery should soon begin. The same will happen in Ireland if its people have the courage to ignore their politicians and take the trouble to think for themselves

No , its the nature of the present monetory system.

Our previous surplus expressed as the national pension fund is not possible under a classical gold system.
Those surplus funds was also spent on stock , debt instruments etc before it was confiscated.
They own everything.
The monetory system is flawed – you cannot expect a bunch of rednecks to comprehend the nature of the beast.
However the present Monetary system needs goverment money to regulate demand , I repeat it is not debt.
The present Euro system is flawed as it prevents the purchase of large amounts of goverment money , instead commercial bank credit dominates and over time will make the inverted pyramid of the monetory system unstable as credit money interest appetite overcomes the tiny base monetory system.
Its a Ponzi.
The only mechanism at this point is the flood the system with base money devaluing the stock of money as the interest cost on private debt becomes unbearable otherwise.
The ECB is lying to you creating the false impression of a unbearable debt so that you give up your last vestiges of independence and state assets to its clients.
This creates a sense of crisis as the medium of exchange function of money goes into disequilibrium.
Its a simple con job on many levels – the complexity lies in the magicians distractions.

Ps – you could also default on Bonds and term accounts instead of flooding the system with base money to get the system back to some form of stability while preserving the value of the remaining stock of money and its associated credit.


I have no better view of the future than you have but there is one thing that I do know and that is how to judge an argument on its merits and not to question the bona fides of those that advance it.

Dear Lord. I could not give an expletive about someone’s good faith, what I want is good judgement.

As it happens Mr Keenan’s well intentioned powers of insight have been in the news recently.

In a 2008 debate with Morgan Kelly he pronounced that:

We know what the Irish banks’ bad loans are. They’re going to be about one per cent of their loan books.”

I don’t see the figures or the conditions that would suggest to me that this is a Swedish situation.”

Well, he was right about the Swedish situation, in a way.

There are a couple of things it would be sensible to require from anyone commenting on the proper approach to resolving the problems caused by the housing bubble, the banking crisis and the insufficient regulation of capital.

* They loudly announced that it was going to end very badly, very soon (Kelly and McWilliams)
* They said that they failed to predict it as their understanding (not their knowledge) of the system was incorrect and they had subsequently changed their analysis. (Mr Lucey and his cognitive error)
* They are new to the game and not invested in either the strength of the Euro or any aspect of Ireland’s economic status quo (the vast majority of foreign commentary).

Is it not reasonable to say that if you did not see the current crisis coming, you horribly underestimated the consequences when it did and that you have never admitted your error that your views on the appropriate course of action to escape the crisis can probably be dismissed?

You seem quite fond of El B.S.
I don’t know why.
You would do well to re-read your Irish history. After 1916 our people would have had debates similar to the ones on this board until the British delivered a defining moment by shooting a revolutionary who was too wounded to stand, in a chair.
Ireland was the first to gain her independence and the rest followed.
The Irish are a small but proud nation. This ECB bull is no better than the affront to humanity that brought down the British Empire.
Bin Smagi is the equivalent of the general who ordered Connolly’s execution.
Mark these words – we have a limit. It is almost reached. Anything rotten – it will come tumbling down!

@ David L

Don’t believe all you read in the newspapers!

To avoid a downgrading of debt to junk status, thereby imperiling funding of infrastructural projects, Icelandic leaders have reaffirmed that the UK and the Netherlands will get most of the debt they claim back.


Apart from the banking issues, the IMF projects a 2011 budget deficit of 4.6% of GDP for Iceland compared with Ireland’s 10.8%. By 2015, Iceland will have a budget surplus of 2.2% compared with Ireland’s deficit of 4.3%.

He’s off on one about Greece today…

“According to our analysis, a debt restructuring would result in the failure of a large part of Greece’s banking system,” Bini Smaghi told Italian business daily Il Sole 24 Ore in an interview published on Thursday.

“The Greek economy would be on its knees, with devastating effects on social cohesion and the maintenance of democracy in that country,” he was quoted as saying.



I did a lazy search for “Ireland”. On p. 61:

In some euro area countries, real GDP has consistently grown above or below the euro area average in recent years. In particular, output growth in Greece, Spain, Ireland, Luxembourg and Finland has exceeded the euro area average every year since the mid-1990s. By contrast, in Germany and Italy real GDP grew by less than the euro area average every year from the mid-1990s to 2005. These persistent differentials appear to indicate that the dispersion of real GDP growth rates across the euro area countries largely reflects structural growth differences and, to a lesser extent, cyclical differences.

On p. 58 the report does note Ireland’s continued rise in housing prices in 1H 2006 but doesn’t say any more about it, while at the same time sounding pretty complacent about Spain’s housing market.

The ECB’s October 2005 bulletin is also worth a look, not only for the article referred to in footnote 1 above – “Output growth differentials within the
euro area: are they cyclical or trend-driven?” on p.43 – but also for the ECB’s thoughts on how to assess the performance of a developed economy’s financial system on p.75. Not much emphasis on the value of a proactive regulator second-guessing asset prices.

Interesting take from ex-CBI and ex-IMF staffer Michael Casey in the IT today. He reckons that its the ECB’s responsibility, in theory, to have a single monetary policy in place across the Eurozone, but the fact that Irish banks (and assumingly other peripheral banks) have been tightening over the last couple of years (due to higher funding costs) means that in effect there is two seperate policies in place, ie the Core vs the Periphery. The ECB should therefore rectify this via QE.


@ Anonym
I think that we should also be told:
1: What meetings these concerns were raised
2: What was the response and specifically was our government informed?
3: Why were these concerns not entered into the public domain?
4: What steps did the ECB take to rectify the situation?
5: Wasnt it extremely ill-advised to introduce a currency first and then play catch-up with oversight and regulation.
As usual you’ll probably see a load of people slagging each other off and attack the public service rather than take up these issues from this article.

@Mr. Bond,

I spotted this as well. Perhaps it might be worth a separate thread if any of the grown-ups here are interested. My first reaction was surprise, given the credentials of the proposer. My second reaction is that it’s a ‘no-no’. We need to get costs and prices down here to increase real disposable incomes. That’s the only way we’ll get any lift-off.

“…economic governance can be discussed and evaluated. I am also very glad that this gives me an opportunity to re-visit Ireland which in many respects is a model for many other euro area countries with regard to economic dynamism and structural efficiency.”

An excerpt from a speech Mr Stark made in 2006. Oh yes the ECB was very vocal alright!!!!!!!!

Original here:

@ Bond Eoin Bond

Gald to see you are in better from today – no slapping now! 🙂

Great link thanks for that.

Joe on the comments side seemed very upset (but I believe he had a point with the Ipad and real value adding).

The ‘Old Codger’ was priceless …….. Joe should be down from the roof in time for tea – thanks again:)

@ Paul Hunt

I too would be interested to hear opinion on this as an option and am intrigued that the banks are still acting unilaterally – is there any risk of ECB penalty for the taxpayer via the banks in this?

It was more than just the regulator failing in Ireland, the failures were systemic and comprehensive

Auditors signed off on fraudulent accounts (Anglo: true and fair view my arse) – the institute of auditors are still self governing and aim to stay that way

When news of Seanie’s loans broke, the Tanaiste promptly declared that no laws were broken (since then no legislation has been passed to ensure it doesn’t happen again)

Directors failing in their duties to shareholders – no sanction then and none still foreseen, as usual any reform will have to come from the EU. Ireland has usually favoured light touch regulation when it comes to boards, wacky things like employees being represented at board level belong in Germany.

It’s as though the country has been run by a white collar cabal. No wonder LBS blames the taxpayer, they elect the men that don’t pass the laws.

“Wasnt it extremely ill-advised to introduce a currency first and then play catch-up with oversight and regulation.”
I don’t think this is necessary a problem with the currency; I do think it is absolutely *the* problem with the introduction of the single market in financial services.

Considering that the destabilising forces in the Irish retail market (as opposed to the funding market) were all from the sterling area, one should consider whether Mifid should include only eurozone countries (another gross mistake it seems).

Certainly having a single market for financial services should not have led to an abandonment of supervision of cross-border capital flows – a lack of supervision that continues today and is, as far as I can see, within the remit of the ECB to supervise and manage within and external to the eurozone in so far as anyone has responsibility.

WRT Herr Stark and others past comments, it does appear that we are being blamed for the intellectual short-comings of the ECB. The logic appears to be “if we didn’t see it, you much have fooled us”. It is childish in the extreme. You can’t see me, I’m hiding, I have my hands over my eyes…

I thought this was particularly relevant to the discussion. John Kay in the FT yesterday.


“Britain’s Independent Banking Commission has recognised that it is better to create a structure that secures the right incentives than to try to control behaviour arising from the wrong incentives. It has also recognised that the objective of regulation is not to prevent bank failures. Governments cannot prevent them – though they can bail out failed banks. Such an objective would stifle innovation and undermine management autonomy and responsibility. Institutions that run into trouble – like Lehman Brothers and Northern Rock – should be able to fail without unacceptable consequences for the financial system.”

Its pretty shocking that very few of our commentators cannot identify a very basic flaw in the Euro system.
A country with zero net sov debt during the boom is now suffering the most from this artificial depression.
Sovereign debt on commercial banks balance sheets prevents banks from engaging in yield chasing in the physical economy – thats its primary function.
Now things have gone too far and Central banks need to incorporate more sov debt and devalue the currency.
Its really that simple in many ways.
The strong dollar , fiscal austerity of the Clinton years also forced private citizens into debt creating massive malinvestment.
It just the scale of the non production of Irish Goverment money during the good years that freed the commercial banks to engage in wild speculation that makes the Irish situation worse then any other country.
If its that simple the ECB knew exactly what they were doing when it invented the 3% / 60% fiscal deficit rules.
It lost all creditability when it gave a equality of monetory flows in the shadow bank sector with fiscal debt.
Its just the commercial banks servant , not the protector of the currency.

Its 2% inflation target is a illusion to give it creditability – it has achieved this by reducing wages and transferring the surplus created to the shadow bank sector which created a massive amount of credit/debt which now have paper equal if not better quality then sovergin debt.
Remember wage deflation is just another form of inflation.
The 2% inflation target uses a Euro as a yardstick not real living standards.

In many ways it is a simple con – executed to perfection.

@ All (in case you missed it on the Florence thread)

Below a link to an outstanding article which I happened upon in the English edition of Der Spiegel.


It sums up, in a text of quite amazing concision, all aspects of the present crisis and its likely denouement.

It also helps explain why the needed provision for the introduction of a European equivalent of Brady Bonds has not been agreed. It is too early!

The references to Ireland, which I find to be accurate, will be noted.


It’s a glaring unanswered question in the speech. If the risk of contagion in a single financial market makes essential (or perhaps just desirable, it’s not clear) a single financial regulator with complete micro-scale authority to regulate and supervise every individual bank in the market, or in the absence of such a regulator makes it essential (ditto) that bank bailout costs be internalised “in the first instance” (and by gunboat diplomacy, if necessary) to every country or region which has an independent financial regulator, then what’s Bini Smaghi’s plan for dealing with the risks from free capital flows in the global single financial market of which the EU is only one part? A single agency probing the books and approving board members for every bank in Guangdong and Port Elizabeth is not on the cards, while gunboat diplomacy will also not be availing in general. For example I note that Brazil has its own currency, and a 100-ship navy. So has the ECB given up on financial sector globalisation? Is it now, perhaps, working behind closed doors on a proposal to ring the EU economy with a barricade of capital controls? Fat chance – but then how else does LBS reconcile his professed belief that it’s important for the Eurozone to have one or the other of his chosen remedies with his apparent belief that the globalised world economy can bump along acceptably without either? (And of course this is only to consider the internal consistency of his position, not to question his assumptions, for example that bailing out all senior bank bondholders with public money is evidently the appropriate response to any systemic financial crisis.)

Absolutely. And Seamus Coffey has pointed out that more than half of the capital that flowed into Ireland was from ex-eurozone sources. A bundle of that must be from the UK, but probably not all of it. George Soros has been clear for years (I first read it in The Crisis of Global Capitalism in 1998) that unfettered capital flows are incredibly damaging. Hot money washes in to an open economy, inflates asset bubbles, and washes out. Like a tidal wave, the backwash is damaging as it rips debris backwards – using the collapsed bits of one building to destroy others.

The capital flight from Ireland has hobbled the chance of recovery, leaving us with bad assets and a huge external bill. We are stuck with the relics of malinvestment and the costs of them, the external capital is gone.

The difference between us and Iceland is that they didn’t allow the backwash of the tidal wave of capital to take their country with it.

I am not Irish, but I live in this great country and have seen what this economic crisis has done. For a long time I have remained silent, because I did not believe that I had the right to comment on this raging debate. But the current debate about the EU’s and ECBs responsibility in this crisis, and to some people their blame, has made me break this silence. I am strong supporter of the European project and the fundamentals for which EU stand for and I believe that the critique levelled at the EU/ECB are both unfair and unreasonable. In my eyes this crisis was caused by; one an ideological standpoint of laissez-faire and “soft-touch” government gone mad and two; the failure of the individual states to take difficult but necessary choices.

I think many here overestimate the power that the ECB had prior to and during this terrible crisis. The ECB’s primary job was one of price stability and maintaining fiscal deficit rules. While maintaining a certain amount of price control the EU/ECB in large degree failed to insure that the fiscal deficit rules were maintained. This was however a cross-European phenomenon where countries systemically ignored these guidelines. The reason for this being a belief on the part of the member states, not the EU or ECB, that while fiscal discipline on paper was a good idea it was not a good/popular political option. This because it required the state to “kill the party” or at least ask its citizens to “turn down the music”.

In regards to the critique that interest rates were kept artificially low for too long I agree one hundred pct., but this was phenomenon seen across the western world and many other developed countries. Many countries outside the European Union also had excessively low interest rates fuelling the credit boom. One final note on interest rates – many have said that interest rates are the only way of controlling a housing bubble. That simply is not so – states can easily decrease the amount of money that a bank lend by forcing them to increase capital requirements (the percentage of a bank’s capital to its risk-weighted assets).

Finally in regards to the ECBs lack of regulation and oversight of the banking sector I can only again agree that it should have been there, but it wasn’t. The main reason for it not being there was that states could not agree or accept that the “bureaucrats” in Bruxelles should have any regulatory control over national banks. Regulation and oversight was therefore the job of the national government which had to insure that its national banks had a sound economic footing. Here many states failed again, because of an ideological belief that “soft-touch” regulation and a laissez-faire market could insure financial stability and attract more investment. This increased investment because one did not have to deal with the “red-tape” of government interference. The bitter truth is that while we indeed saw a boom in investments in the banking sector the idea of an unregulated banking sector as stable model turned out to be catastrophically wrong. On the other side of the pendulum countries, Greece, choose to cover up the reality of their economic problems.

So yes the ECB and EU have failed in certain respects and if not given the adequate tools will fail again. But the main failure of this crisis was with the individual state and a laissez-faire “soft-touch” ideology that had gone to fare.

In regards to LBS, which started this long ramble, he is an ass – plain and simple.

@ hoganmayhew

‘The capital flight from Ireland has hobbled the chance of recovery, leaving us with bad assets and a huge external bill. We are stuck with the relics of malinvestment and the costs of them, the external capital is gone’

Except for the FDI enclave, which is primed for the recovery in the core EZ, privileged in its tax status, and protected from the credit crunch in the domestic sector. The core within the periphery, a latter-day Pale.

It appears to me we are placing an inordinate amount of blame on the ECB and low interest rates. It is important that we begin to realise that we are an independent, sovereign state. Low interest is a good thing when it is used for productive purposes. It is not normal for the leaders of a country to behave like head waiters and waiters in an all you can eat buffet style restaurant. As we all know funds were flowing from banks, developers, building contractors and others into political coffers in return for keeping the all you can eat buffet going. I know that it will come as a shock to most people and they will have difficulty getting their heads around the idea that Irish politicians are venal and weak and the business community is exceedingly greedy. I will not comment on the morals of both groups because the language needed would be crude.

In many countries gov’ts have taken away the property appreciation gravy bowl without increasing interest rates. A simple and common way that this is done is for the gov’t to impose mandatory higher down payments on property purchases. Instead our children in charge of the candy shop on Kildare St. were doling out incentives to gorge. Yes Sheila darlin twas dolin out incentives to gorge they were.

It is long past time we came out of our reverie and started thinking straight.

@anonym and yoga: I’ve been following your exchange with interest. I’m commenting here since I have just posted a link to a column of mine which talks about the fact that the eurozone is a monetary union without a common banking regulation framework (or fiscal union), and which sees this as a problem. But I agree with you two that logically the Single Market implies that there needs to be mechanisms to ensure there is not regulatory competition in financial services in the EU as a whole. And I would favour capital controls, or perhaps more plausibly tax-based ways of chucking sand into the wheels of finance, when it comes to flows between separate regulatory blocs — the EU, US, etc., again to pick up on your comments. These issues were a big focus of attention at the recent Bretton Woods bash, and there was a lot of pessimism there about the failure to properly get to grips with financial regulation since the crisis.

@Kevin O’Rourke
Indeed, I read your piece with interest, covering as it does the same topics.

What it doesn’t cover is the misalignment between the EU and the eurozone. It seems to me that it was a mistake to not have a single currency, but to have a new large area currency and a set of existing smaller area currencies.

Allowing those smaller area currencies to partake in Mifid on the same terms as the new large-area currency is pretty much incomprehensible. It is perhaps understandable for those in ERM II who are converging to the large single currency, but not at all for those who have no intention of joining.

Not only are capital flows from small curencies within Mifid area institutions not restricted, it sometimes appears that they are not even monitored? They are either lumped as EU money or they are lumped as outside eurozone money. In effect, the small currencies are having it both ways – free to set exchange rates, free to set interest rates, free to move capital and benefit from the single market for financial services.

The issue of how the eurozone and non-eurozone zones interact is an interesting one…
For example, the eurozone clearly needs a common banking resolution framework. But this seems likely to involve some element of fiscal union. If it would be desirable to extend such a framework to other EU members,then would they have to be included in such a fiscal union? Seems very difficult…

@Kevin O’Rourke
“would they have to be included in such a fiscal union? ”
Or excluded from the financial union. Don’t forget there is another troika:
Fiscal-Finance-‘Economy’ (for want of a better word). Of all the unions and treaties we’ve signed up for, the most opaque one to the common person is the financial one. It is subject to no democratic oversight, not even by proxy (council of ministers), its rules of operation are generated internally in conjunction with the finance industry, but its effects are mostly on consumers.

What exactly is the European project and what is its goal ?

What are the fundamentals on which it stands ?

Have the central banks been laissez faire during the crisis ?

Has Ireland taken “difficult but necessary choices ” ?

What has fiscal defecits got to do with this crisis ? – other then being a reverse trigger for massive credit expansion.

Or is the ECB just mad at us for sending Dustin to the euro vision

These deep questions need careful thought and consideration …………….

don’t rush now.

Not knowing LBS I can only speculate as to why he might have it in for Ireland, if he has it in for Ireland, as suggested by some posters.

I live in Italy and there is a lot of anti-Irish feeling in economic circles. Italy was tired of being seen as the ugly sister of the larger EU economies and hated to be grouped with the PIGS back when. It hated to be told that its economy was low-skill, outdated, that its banks were small, conservative, unwilling or unable to enter into the new world order of finance.

Then the crisis came to the rescue. The official story here is that Italy has weathered the crisis well. Yes, the debt-GDP situation isn’t good. But the banks are stable, and private debt and private savings are healthier than in the spendthrift economies. There was no housing crash. Unemployment has not risen sharply.

A few years ago Ireland and Spain were being singled out for praise, while Italy langoured. Now Italian journalists waste no opportunity to use the PIGS acronym, with Ireland in there in place Italy. The Schadenfreude is huge. Minister for the Economy Tremonti was on TV a couple of weeks ago in a debate and he described Ireland as a poor farming country that produced nothing and that had gotten SUDDENLY rich by turning istelf into Antigua without the weather. Simple as that.

The higher goverment debt in Italy prevented the domestic banks there from chasing yield and contributing to malinvestment.
Once again sov debt is not really debt, it is money with a time period and interest coupon.
Unfortunetly the ECB has been designed in such a way as to be a sovergin killer – both on the European continent and America.
The ECB values debt over money with catastrophic consequences to the physical economy.

Comments are closed.