ECB Helped Fuel Irish Bubble, Says Ex-PM
The European Central Bank was guilty of a “major failure of supervision” in not restraining lenders from fueling the property bubble in Ireland, says a former prime minister.
John Bruton, premier in the 1994-97 centre-right, Fine Gael-led coalition, on Monday accused British, German, Belgian and French banks of “irresponsible lending... in the hope that they too could profit from the Irish construction bubble.” Mr Bruton said in a speech to the London School of Economics that banks had “lots of information available to them about spiraling house prices in Ireland”.
They were supervised by their national central banks and by the ECB which “seemingly raised no objection to this lending.”
Burden-sharing – the notion that European banks and bondholders should share with Irish taxpayers the cost of restructuring Ireland’s broken financial system – is likely to be a key demand of the new Irish government as it seeks easier terms on a €85 billion bail-out provided by the European Union and International Monetary Fund. A joint coalition program, agreed by Fine Gael and Labour at the weekend, said the new government “secured a strong mandate from the Irish electorate to renegotiate a more credible package that is better for both Ireland and Europe”.
Mr Bruton, said: “Of course, primary responsibility for this does rest with the Irish authorities who did not supervise the Irish banks properly. There were, I suggest, major failures of prudential supervision, at wider European level too, in other central banks, and in the ECB.” Mr Bruton, whose brother, Richard, is likely to take one of the economic portfolios in the government, said the banking crisis is seen in Europe as “a purely Irish problem with purely Irish responsibility”.
But by taking on the liabilities of Irish banks to other European banks and thus avoiding a bank failure, Mr Bruton argued that Irish taxpayers “are now helping to stabilize the situation of European banks and of the European banking system. There is a tendency in some quarters to glide over that fact, and to present it as a purely Irish problem with purely Irish responsibility. While that story may be comforting to some audiences, it is not the whole story, and blinds us to lessons that need to be learnt at a wider European level.”
When Mr Bruton was premier, Dublin held the rotating EU presidency, agreeing the rules on the so-called stability and growth pact. He now concedes “We again made the mistake of focusing exclusively on government finances.”