ECB did us favour by forcing bailout, believes Honohan
Published 26/06/2015 | 02:30
The ECB had "inadvertently" done Ireland a favour by forcing us into a bailout, Central Bank Governor Patrick Honohan has told the Banking Inquiry.
Mr Honohan said he believed Ireland could have avoided the IMF bailout programme if the ECB had been prepared to fund Irish banks.
We could have "staggered on through" the difficult years of 2011 and 2012 "and now we would be saddled with much higher servicing costs", he said.
Instead the ECB "inadvertently did us a favour" by allowing us go into the bailout programme.
Chairman Ciaran Lynch asked if the structure of the bank guarantee had any bearing on Ireland's entry to the bailout programme.
Mr Honohan said if it had been a three-year guarantee, it might have deferred the crisis for another year, but he did not think the total sums involved would have been in any way altered.
He told the meeting that the bank bailout had been raised with Finance Minister Brian Lenihan but rejected by him seven months before it was finally introduced.
Mr Honohan had made the suggestion to the minister in April 2010 that Ireland might need a bailout.
At the time he was concerned that Ireland was being praised as being "ahead of the curve" because of the bank guarantee and the "well-organised fiscal response" to the economic crisis.
"I was beginning to be conscious that it might not be enough" he said.
In a phone call to Mr Lenihan, Mr Honohan suggested that Ireland could be next to need a bailout.
The minister, he said, wanted to support a Greek bailout believing it would make money for Ireland
Mr Lenihan said he had been talking to people in Brussels who said that "Portugal could be next".
The following month, Mr Honohan said he got a call of Ashoka Mody of the IMF "out of the blue" who asked him if Ireland would be interested in a "precautionary line of credit".
He thought this had potential but it was ruled by the Department of Finance.
By November 4, he knew that Ireland needed a bailout, he stressed, as borrowing rates on the open markets had shot up and deposits were flowing out reflecting a loss of confidence.
"It was clear to me that application for a programme could no longer be safely deferred."
Discussions began in Dublin on November 18, the day that Mr Honohan made his controversial call to RTE's 'Morning Ireland' programme to announce the bailout.
He said he was "anxious to make a credible public statement" as the previous day had seen an outflow of €900m in deposits from banks - the largest daily figure before or since.
Moving to the present situation, Prof Honohan said: "The banks have now got reasonably effective systems in place to deal with collection and restructuring on the scale needed."
He stressed, however that "they did not introduce adequate systems until chivvied by the Central Bank from late 2011".
He also said he found former Taoiseach Brian Cowen to be a very businesslike and effective chairman, courteous and in command of the situation, and "he sometimes doesn't get that image".