State case for ESM funds exceptional, says Citigroup economist

Ireland has an "exceptional claim" to have its banks recapitalised by the European Stability Mechanism (ESM), the euro-zone bailout fund, according to Citigroup chief economist Willem Buiter.

"The Irish sovereign has on its books at least €30 billion – possibly up to €60 billion – worth of debt that is only there because Ireland was cajoled [and] forced into taking one for the team," he said yesterday at an Irish Life pension conference in Convention Centre Dublin.

Mr Buiter said that in 2010 the Government wanted to "bail-in" Anglo-Irish Bank, forcing the bank's creditors, including senior bondholders, to absorb some of the lender's losses by having part of the debt they were owed written off. However, Mr Buiter said Ireland was urged not to do so by Germany, the United States and the then head of the European Central Bank, Jean-Claude Trichet.

“I think Europe owes Ireland somewhere between €30 and €60 billion,” he said, adding that he hoped the continent would “cough up”.

“They [Ireland] have been given a bit . . . but it doesn’t add up to the extra burden put on the Irish taxpayer,” he said.

Last week German finance minister Wolfgang Schäuble reiterated the country’s opposition to using the ESM to recapitalise Irish banks directly.

Mr Buiter said he expected European leaders to reconsider their stance and noted that Ireland should seek to enter another back-up or “precautionary” bailout programme when it exits its current one at the end of this year.

He said that when somebody offers you a “virtually free option which gives you free insurance” it would take a brave person to turn it down.

“Belt and braces are better than braces alone,” he said. “Ireland would be well advised to take the insurance of a light precautionary standby programme.”