Bailout questions that the ECB must answer
AFTER almost six months, questions about the ECB's role in the events surrounding last November's EU/IMF bailout continue to mount. With former Finance Minister Brian Lenihan accusing the ECB of "forcing" Ireland to take a bailout, here are the questions which the ECB must answer.
1) When did the ECB conclude that Ireland needed a bailout?
The NTMA suspended its regular monthly bond auctions on September 30 as yields rose to stratospheric levels. But it was another seven weeks before Ireland applied for an EU/IMF bailout. At what stage during this extended period did the ECB realise Ireland needed assistance?
2) If the ECB decided Ireland required a bailout, when was this insight conveyed to the Irish Government?
In the run-up to last November's bailout, Dermot Ahern and Noel Dempsey assured the Irish public that no bailout discussions were taking place -- just days before the actual bailout was announced. While not even their worst enemies believe that Messrs Ahern and Dempsey were deliberately lying, we can only conclude that they were kept in the dark, just like the rest of us.
3) What was the Irish Central Bank's role in negotiations?
Central Bank governor Patrick Honohan emerged as the unlikely hero of the bailout debacle when, with the Irish banks on the brink of collapse, he went on RTE Radio's Morning Ireland programme to confirm what most of us already suspected, that bailout negotiations were under way. Honohan's dramatic intervention obscured the Irish Central Bank's ambiguous role in the affair. While the Central Bank is theoretically an Irish institution, it is also part of the Eurosytem, as the collective of eurozone central banks is known, and Honohan sits on the ECB's governing council. Whose side were you on, Paddy?
4) Did ECB council members "brief" against Ireland?
One of Lenihan's most serious claims is that members of the ECB's governing council "briefed" against Ireland to the international media last November. By rubbishing Ireland's -- admittedly increasingly incredible -- claims of solvency to the international financial media they speeded our passage into the EU/IMF bailout fund. Who were these ECB council members and who authorised them to do what they did?
5) Did the ECB attempt to warn Ireland?
ECB council member Lorenzo Beni-Smaghi claims that the ECB warned Ireland of the dangers it faced from mid-2010 onwards and wanted the Government to bring forward the date of the 2011 Budget. Lenihan denies this, saying such claims are "at variance with the truth". So who is telling porkies?
6) Did the ECB keep EU Economics and Monetary Affairs Commissioner Olli Rehn in the dark?
When he visited Ireland on November 8-9, OIli Rehn gave no indication to his hosts that the ECB was planning to pressure Ireland to take a bailout. Two days after his return, the ECB made its decision. Did Rehn mislead the Irish or was he also played for a fool by Frankfurt?
7) Did the ECB wait to make its move until most of the senior bondholders of the Irish banks had been repaid in full?
ECB sources have always claimed that it only put its foot down when emergency lending to the Irish banks, at over €100bn, had reached unsustainable levels. However, by waiting as long as it did, it ensured that €70bn of unguaranteed senior bonds were repaid in full. Coincidence or what?
Sunday Indo Business