Ireland and the ECB: “We have political power and we should use it”

Brian Lucey in the Irish Times:

I RECENTLY had coffee with a former colleague who is now working in the financial services industry in Germany. He was at pains to stress that the general tenor of the German press, even among the tabloids, was that although Ireland had been stupid, feckless, and perhaps somewhat arrogant, it was in general a well-run European country that was at least trying, painfully, to get out of the hole it had in part dug for itself. He felt there was a degree of sympathy for the Irish, and the German taxpayer would understand if the Irish, having made a genuine effort, required the European partners to take some of the burden.

The truth is there is no agreed mechanism for any country to go bankrupt in the way individuals can. That’s a big gap in the international financial system and makes re-entry into the club of nations arduous and problematic. Still less is there one for a member of the Eurozone.

Lucey suggests this could be the ECB’s weakness and Ireland’s opportunity (to re-coin an old phrase):

We have political power and we should use it. Even if the Government is forced to consider a unilateral decision; and I would favour that if we begin movement towards that using the powers of the Minister for Finance, the ECB will not cut off emergency liquidity. To do so would expose it as a neocolonial power.

I do not believe that it is such. Irish banks borrowed foolishly from European institutions. European institutions lent bullishly to Irish banks. The solution to date has been for the Irish taxpayer take on all of the adjustment. Time to call a halt.

There is a clear difference in German sentiment towards Ireland and Greece. But it will be getting Europe to recognise the unrealistic size of the burden that’s the key to unlocking this increasingly drastic situation.

It’s an open questions as to whether it is possible to arrive at a credible solution which works for Ireland and does not spark further instability around the peripheral countries.

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