While the Irish must understand the constraints imposed by the bailout package, the EU also bears some responsibility for the banking crisis and should not undermine Ireland's economic model, writes former Taoiseach John Bruton.
This commentary was authored by John Bruton, taoiseach of Ireland from 1994 to 1997. He has also served as Ireland's minister of finance and minister for industry and trade, and the EU's Ambassador to the USA between 2004 and 2009.
"People in Ireland are awaiting with acute interest the results of stress tests on their banks to be made public on Thursday. Stress tests are estimates, estimates of what assets might be worth at some time in the future.
Estimates can be made on either very pessimistic, or very optimistic, assumptions about economic developments in the future.
The hope in some quarters is that the EU exercise of stress testing banks will generate confidence in banks based on certainty, but we should be careful here. Certainty about the future is a logical and philosophical impossibility. All banking, everywhere and always, is a matter of confidence, not of certainty. If one makes exceptionally pessimistic assumptions these can become avoidably self fulfilling. One must avoid accentuating the economic cycle in the downturn phase, just as much as one should lean against the wind in the up phase!
In Ireland's case, the credit of the state itself has unfortunately become entangled with that of the banks. It would be no solution to anything to enhance the credit of the banks, by diminishing the credit of the state. This is the issue with which the newly elected Irish government is working with its EU partners.
I am sure EU decision-makers are by now fully aware that the Irish banking problem has been influenced by the requirement of free movement of capital within Europe since 1990, and the deep interdependence that that has created, with all its good and bad aspects.
In a sense, the Irish banking problem is a manifestation of a wider European banking problem that grew in the context of monetary union. We have had, as President Barroso has said, a monetary union without an adequate economic union."
To read John Bruton's op-ed in full, please click here.