Commentary on Bini-Smaghi’s remarks

Arthur Beesley’s Irish Times interview with Lorenzo Bini-Smaghi is first class. The Italian ECB official sets out the mad economic policies of Fianna Fail and of the Irish people as willing corespondents and I agree. For those interested the full interview is worth reading.

Some salient points are worth extracting.

He said that the government eased off the fiscal discipline in 2009 after starting well. The uncertainty spooked the markets and lead to our perdition. Bini-Smaghi says that the December budget should have been brought forward and that perhaps if it had the IMF visitation may have been avoided.

The July 2010 bank stress tests excluded Anglo and the Irish element was insufficiently honest with regard to the extent of the property value collapse giving a better than the reality impression of the state of Bank of Ireland and AIB.

He pointed out that it is unacceptable for the ECB to replace the market as funders of the Irish banks.

He does not accept the mral hazard argument for bank bondholders (Predictable and reported by the IMF two weeks ago)

He says that the reason that the 5.7% loan rate aplies is that this is standard and cites the IMF. Well no actually!

But he correctly says that this is to incentivise the government to get borrowing down as fast as possible.

Bini-Smaghi does confirm that the danger of bank contagion to the big European banks was a real worry in the summer.

My view is that the ECB’s attitude is that saving the Euro banks is the real objective and the bond holders are the core of this.

The views expressed by Bini-Smaghi are those of a bank insider and not a politician. They are conservative and on the side of the financial elite.

However, I agree that we must not give the impression that we will renege on our sovereign debt.