Irish taxpayers 'should foot bank bill'


Irish taxpayers should not complain about having to bailout the country's crisis-hit banks and, in future, regulation should be steered at a European level, according to ECB executive board member Lorenzo Bini Smaghi.

In an opinion piece in today's Financial Times, Mr Bini Smaghi said Ireland's taxpayers should foot the bill as they are the ones that benefitted during the pre-crisis boom years and elected the governments that regulated the banks as the problems built.

"The principle of 'no taxation without representation' should work both ways. If taxpayers have the right to share in decision-making, they must also accept the consequences," Mr Bini Smaghi wrote.

"As long as the accountability of supervisors to taxpayers is primarily a national affair ... then there is a high risk that taxpayers will foot most of the bill. They should not complain when it actually happens."

Before taking power earlier this year, the new government said it wanted to restructure the debt of the country's battered banks so that bondholders accepted losses on their loans.

The ECB has been strongly against the idea, as it fears it could spark a chain reaction in the banking system and trigger a new Lehman Brothers-style crisis.

Mr Bini Smaghi said that while in theory, shareholders, managers and bondholders should bear the costs of a bank being restructured, in an open system like the euro zone's such problems were never black and white as they could pose systemic risks.

The situation where banks are based in one country but have subsidiaries carrying risks in another also creates the danger that they are not properly controlled by anyone.

Ireland's problems showed pure national regulation was flawed and in future needed to be steered at a euro zone level or wider, he said.

"Ultimately this would mean the integration of independent prudential supervision at the European, or at least euro area, level - to match the way burdens are shared when a systemic crisis strikes. Such a move may seem politically unpalatable, as taxpayers around the euro zone fear having to bail out the banks in other countries. But these taxpayers would at least have the assurance that banks in different countries would henceforth be subject
to uniform and independent supervision," Mr Bini Smaghi said.