Forcing investors to pay for crisis 'populist'

ECB WARNING:THE EUROPEAN Central Bank has warned Ireland against taking the "populist" step of forcing private bondholders to share the cost of the financial crisis.

ECB chief economist Jürgen Stark said the time had come for the ECB to end emergency intervention in the money markets. In particular, Irish banks would have to be weaned off ECB liquidity.

“It can’t be an ongoing thing,” he told the influential Frankfurter Allgemeine newspaper. “According to the parameters of the EU-IMF programme the recapitalisation of Irish banks should have ended last February, but the last Irish government didn’t want to take on that responsibility.”

Asked if he supported the idea of Ireland sharing the cost of its crisis with bondholders, he said: “That would be a populist move, but one has to think of the consequences. The ECB is worried that in Europe and in other parts of the world that it would come to a new wave of insecurity.”

“Therefore we are warning the Irish Government in case it wants to solve its problems at the cost of bondholders.”

Mr Stark admitted that the ECB could not keep interest rates steady for much longer. It was in a “process” of ending banks’ dependency on ECB liquidity.

“Today there is considerably less spare liquidity in the system. That is a sign of normalisation on money markets,” he said.

Rumours that the Government was trying to force concessions for all Irish banks from the ECB were, he said, “rumours, nothing more”.

“Ireland will have to publish the results of its bank stress tests and name the capital needs of the bank. That is the task of the Irish Government,” he said.