Trinity College professor Philip Lane has joined a chorus of senior figures in criticising the decision not to burn bondholders as part of the 2010 troika bailout, saying the burden of the programme fell unfairly on Ireland.
Prof Lane said that if the decision not to burn bondholders was made at a European level, then it should not have fallen to the Irish taxpayer to protect the stability of the eurozone.
The economist , appearing before the Oireachtas Banking Inquiry, said: “To the extent of the common responsibility [to maintain financial stability], it’s deeply unfortunate that so much happened at national level without, it looks like, too much negotiation in advance with the rest of Europe — as far as my understanding [goes].
“When it comes to the unguaranteed bonds in 2010, it seems clear that if the euro system decides they don’t want bondholders to be burned, then that should be paid for at a European level, it shouldn’t fall on an individual country to protect the financial stability of Europe but, essentially, the mechanism was not in place at that time to deliver on that.”
His comments follow those of Central Bank governor Patrick Honohan, who this week said the failure to burn senior bank bondholders as part of the troika programme involving the EU, ECB and IMF was a significant flaw.
Prof Lane laid the blame for the crisis largely at the feet of the Central Bank and Financial Regulator, saying he could understand, to a degree, the individual lending of banks, adding that individual bankers may have “bought the narrative” that the world was safer than it was, but he stopped short of excusing bankers of their recklessness.
He did say, however, that the regulator is the only body with a complete, overarching view of the banking landscape, and he criticised the reluctance of authorities to make tough decisions which could have lessened the impact on Ireland of the global financial crash.
Touching on the theme of euro membership, the professor of international macroeconomics said that, had Ireland not been a part of the single currency, the crash would have been much more severe, initially, with rising interest rates, a large devaluation of the currency and severe domestic hardship, but it would likely have precipitated a quicker recovery.
He also said greater fiscal discipline during the boom years and the establishment of a “rainy day fund” would have been advisable.
Also speaking at the hearing was Klaus Regling, co-author of a report on the sources of Ireland’s banking crisis covering the period up to the bank guarantee. He said the most striking aspect of the Irish situation was that it seemed nobody was really in charge in the lead up to the crash, adding that bank officials largely ignored alarm bells warning of the impending crisis.
He added that the acquisition of property was almost a national obsession, the impact of which is hard to overstate.
The current managing director of the European Stability Mechanism and chief executive of the European Financial Stability Facility said that a range of domestic and international conditions, including the flow of global liquidity and influx of foreign savings, combined to create the particularly- damaging financial crash, but he added that lax domestic regulation and fiscal mismanagement added fuel to the fire.
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