A lean Italian in his mid-50s, Bini Smaghi is a ranking member of the ECB executive board and was a key figure behind the scenes in the drama that saw Ireland seek an EU-IMF bailout two months ago.
He is the first senior European official to publicly describe in detail, from the perspective of an EU institution, the sequence of events that led Ireland over the edge. He argues that it’s not necessarily a negative thing to have taken external aid, but reveals that the bank repeatedly pressed the Taoiseach, Brian Cowen, and his finance minister, Brian Lenihan, to do more to avoid that fate.
Although the rescue deal will inflict years of austerity on the beleaguered Irish people, Bini Smaghi argues that the measures themselves will not destroy the economy. Ireland’s meltdown is the outcome of policies made by politicians the people elected, he says. As the bubble inflated, the Government, taxpayers and regulators believed it was in their interest to keep the party going. While recognising that cutbacks and tax hikes are severe, he says the only way out is for taxpayers to foot the bill.
“WHEN THERE are people who say that the Irish taxpayers are suffering from the problems created by the banking system, I would remind that for many years the Irish taxpayers benefited from that system,” he says.
“Democracies have to be accountable and consistent with their own choices. I don’t think anybody outside Ireland should tell Ireland what to do, but you should not complain if now you have to increase taxes as a result of the choice of economic model the Irish people made.”
This was in essence an Irish decision, he insists.
“I think it was a choice of the Irish. It was the choice of the successive governments, and their voters, to try to adopt a growth model very similar to the British one, with an overly competitive financial system, underestimating the risks associated with this kind of model. Many others were not aware of the risks.” [added emphasis]