ECB should not have meddled in fiscal policy

The tone of the European Central Bank’s letter that was sent to Brian Lenihan is hardly surprising. What is surprising is that the ECB is going beyond its mandate of monetary policy to interfere in the fiscal policy of a sovereign nation.

This is evident in the letter: “The request (for a bailout) shall include the commitment to undertake decisive actions in the areas of fiscal consolidation, structural reforms and financial sector restructuring”. It went further with an insistence that the Irish Government raid its own National Pensions Reserve Fund (NPRF): “The plan for the restructuring of the Irish financial sector shall include……existing cash reserves (NPRF) of the Irish government”.

This fund was wisely set-up to alleviate the inevitable pensions crisis that is coming down the line. At the ECB’s insistence, we have robbed Peter to pay Paul. Thanks Mr Trichet.