Bailout funds not for banks - Bruegel

 

There is very little chance that the EU’s bailout funds will absorb any bank debts taken on by the Irish State over the next year, says Guntram Wolff, deputy director of Brussels-based economics think tank Bruegel.

A German national, who until recently worked for the European Commission, Mr Wolff told the Institute of International and European Affairs Irish Presidency Conference that German law explicitly excludes the use of bailout fund resources to recapitalise banks.

He said that only after the German election, next September was there any possibility that Germany’s laws might be changed to allow for bank recapitalisation from the bailout funds.

Mr Wolff said it was more likely Ireland would obtain some relief of its banking debt burden via a restructuring of the promissory notes used to prevent the collapse of Anglo Irish Bank. He said he believed the German central bank would maintain its opposition to restructuring the promissory notes, but that Berlin is more likely to accept such a move.

Future bank crises

Discussing the likely shape of Europe’s banking union, currently being negotiated by EU member states, Mr Wolff said that, although some of the costs of future banking crises would have to be federalised, at least some costs would remain with taxpayers in the country in which the crisis took place.

Kevin O’Rourke, professor of economic history at the University of Oxford, was sharply critical of the European response to the crisis, which, he said, had been very inflexible. He urged that Europe stimulate its economy as the US has done.

Noting a collapse in public trust in the EU, he warned that voters in countries afflicted by persistently high unemployment could turn to extremist political parties.

Prof Ian Begg of the European Institute at the London School of Economics said the EU’s budget should be focused on areas where it can generate value for Europe, such as research. If there is to be a step change in the size of the budget in the context of creating a fiscal union in the euro zone, he suggested that pooling corporation tax revenues would be the most logical way of funding it.