ECB turned blind eye to predatory lending, ex-EU-ambassador says

"From 2000 on, British, German, Belgian, French banks, and banks of other EU countries lent irresponsibly to the Irish banks in the hope that they too could profit from the then obtaining Irish construction bubble," he said. "They were supervised by their home central banks, and by the ECB ... who seemingly raised no objection to this lending."

Noting that under the statute of the European System of Central Banks, the ECB is empowered to intervene to correct such problems, he demanded why Frankfurt did not act.

"If the Central Bank of a country was allowing its banking sector to grow to 300 percent of its GDP, surely the ECB would have seen the dangers in that and used its powers?"

"It is fair to ask if the ECB considered using [its powers] when it saw the domestic financial sectors in Ireland and Spain grow disproportionately, and if not, why it did not do so."

Describing a "major failure of prudential supervision" by the EU, central banks and the ECB, the insinuation is that in failing to act, Frankfurt worked to the benefit of core European economies at the expense of peripheral ones.

Sticking the dagger in deeper, Mr Bruton said that Irish taxpayers were working to stabilise the accounts of core European banks but that EU leaders are willfulling ignoring this fact, prefering to assign a "purely Irish responsiblity" to the country's situation.

"Irish taxpayers ... are now helping to stabilise the situation of European banks , and of the European banking system," he said.

"There is a tendency in some quarters to glide over that fact, and to present it as a purely Irish problem with purely Irish responsibility. While that story may be comforting to some audiences, it is not the whole story,"

He went on to say that EU leaders in responding to the eurozone crisis have focussed on reining in public spending, which he said does nothing to solve the real problem in the area, a crisis of banking supervision.

"Government deficits were not the primary problem. The primary problem was the expansion of private sector credit, and there were and are no penalties for that. Nor are any proposed [by the Van Rompuy-Barroso competitiveness pact proposals]."

He said that the root of the problem is a lack of a common European banking policy, noting that Europe's banking system is three and a half times Europe's GDP, while the US banking system is only 80 percent of the US GDP.

The free movement of capital has led to a " European banking reality", he continued, which should have been followed up with a common EU banking policy, "with tight supervision from the centre, especially in those parts of the Union where the common interest rate was inappropriately low for local conditions."

Such a policy should take into account "a European view about the size of banks, their interconnectedness of banks, the 'too big to fail' problem."

However, he worried that the current crop of leaders do not have the "intellectual self confidence" that the Union's founders did to achieve the solutions necessary, including making "politically acceptable the occasional transfers of funds from one part of the union to another."

"That self confidence must be rediscovered," he said, finishing by a call for a "a true European demos, and a European patriotism."