The European Central Bank still faces a stand-off with Dublin. The FT reports today the warning by Lorenzo Bini Smaghi, an ECB executive board member, that Ireland cannot expect to renegotiate the terms of its bail-out. The matter has become an issue in the country’s election campaign.
RTE, the Irish broadcaster, has now posted the full interview with Mr Bini Smaghi. It’s a great example of slick, central bank transparency. Diplomatically but firmly, Mr Bini Smaghi warns Ireland’s politicians that if they imposed losses (a “haircut”) on Irish senior bank bondholders, “immediately you would have a run on the banks”. Irish account holders themselves would worry about the security of their savings. The end result could be a collapse of the banking system – and the Irish taxpayers would face an even larger bill.
Irish taxpayers had to bear responsibility for the crisis, he made clear. They supported a low tax system that created the good times; it was only right that they should shoulder the cost when things went wrong.
Mr Bini Smaghi denied the ECB had pushed Ireland into last year’s bail-out, Read more
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