Europe ‘had a role in bank crisis’

The Irish banking crisis was caused by too much borrowing and poor supervision combined with reckless lending by European banks, according to Christine Lagarde, managing director of the IMF.

Minister for Finance Michael Noonan and IMF managing director  Christine Lagarde at a press briefing at Government Buildings, Dublin. Picture: Gareth Chaney

Her statement directly contradicts the position of the German finance minister, Wolfgang Schäuble. In a recent interview he said the responsibility of absorbing the Irish bank losses lay with the Government because the crisis was caused by domestic factors.

The State has had to pump €64bn into bailing out the banking system. The Government is looking for debt relief through the ESM taking stakes in the domestics banks. However, the creditor countries are opposed to such a move.

In a speech at Dublin Castle, Ms Lagarde said it was not possible to change the policy response now.

“We cannot rewrite history. We made known the position of the IMF at the time. Now we have to look to the future. We cannot keep looking in a rearview mirror.” She said the emphasis had to be on growth and employment.

But in future, an EU banking union has to ensure that the toxic link between banks and sovereign debt is broken. Ms Lagarde called for a single supervisory mechanism as well as a strong resolution regime with the capability of closing or restructuring banks in a timely manner — including burning bondholders.

“Troubled banks that are not systemic can be handled at the national level. But what about systemic troubled banks, which might be too big for any one country to handle? Here, direct recapitalisation by the ESM could play an important role,” Ms Lagarde said.

“It would share the cost across membership — with heavy lifting to be done, 17 pairs of hands are better than one. This has particular relevance for Ireland. Direct recapitalisation of the viable Irish banks can lower public debt — by switching some debt owed to Europe with equity — and help insulate the Government from further potential drain if the economic situation gets worse.”

The Irish banks face another round of stress tests in July, which will determine whether they need to be recapitalised again.

Ms Lagarde said northern European countries would have to accept higher levels of inflation and higher wage levels to correct macroeconomic imbalances.

The German government is implacably opposed to inflation above the ECB ceiling of 2%. It insists the only solution to the eurozone crisis is by all member states improving competitiveness.

Ms Lagarde said she has made her views known to the German chancellor Angela Merkel. “A tradition of mine has been to annoy some of the [EU] leadership. We need a more balanced approach. I will not renege until I am heard,” she said.

© Irish Examiner Ltd. All rights reserved

Email Updates

Receive our lunchtime briefing straight to your inbox

Related Articles

More in this Section

U2 firm records profit of €3.7m

Ikea sales reignite Cork store hopes

China makes first investment in Irish energy market

Apple-supplier Foxconn eyes US on Donald Trump win


Breaking Stories

European Central Bank extends stimulus programme

14 video games it's time to start getting excited about

Facial recognition software refused this guy's passport photo saying his eyes were closed - and everyone thinks it was racist

Chrome for Android now lets users download web pages for offline viewing

Lifestyle

Watch Michelle Darmody make the perfect Christmas cocktail

Dowcha Puppets pulling the strings for panto in Cork

Five 'Very Important Patients' at Temple Street pick the best toys of 2016

Full disclosure in Oliver Stone's new film about CIA whistleblower Edward Snowden

More From The Irish Examiner