Tuesday 25 October 2016

ECB never explained refusal to let Ireland burn senior bondholders

Sarah Collins in Brussels

Published 27/01/2016 | 02:30

Former ECB president Jean-Claude Trichet addressses members of the Oireachtas Banking Inquiry at the Royal Hospital Kilmainham. Photo: Frank McGrath
Former ECB president Jean-Claude Trichet addressses members of the Oireachtas Banking Inquiry at the Royal Hospital Kilmainham. Photo: Frank McGrath

The European Central Bank's refusal to let Ireland burn senior bondholders was not explained to authorities in Brussels, a new report has found.

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An unprecedented look back at bailouts by the EU's Court of Auditors said that despite the ECB having a "very broad" advisory role in eurozone bailouts, it was not required to explain the advice it gave.

"For instance, the ECB did not provide the commission with its internal deliberations on burden-sharing by senior debt holders in the restructuring of Irish banks," the report said.

Meanwhile, the report was critical of the European Commission's internal processes and said that it was "generally weak" in its handling of the financial crisis, failing to spot serious warning signs in the Irish economy in 2008.

Attempts to burn senior bondholders by the Irish government in 2010 and 2011 were shot down by the ECB's then-president Jean-Claude Trichet over fears it that would wreak havoc on eurozone banks.

Evidence on the matter was given to the Oireachtas banking inquiry last year by Kevin Cardiff - former secretary general at the Department of Finance and now Ireland's representative on the Court of Auditors.


Mr Cardiff told the inquiry that the ECB had threatened to withhold emergency funding for Irish banks if the Government pressed ahead with burden sharing.

At the time, Irish banks were dependent on an ECB liquidity lifeline amounting to almost 100pc of GDP.

EU auditors said in their report that this was "essential to the success of the programme", on top of the EU-IMF loans.

Yesterday's report acknowledged that "alternative policy actions were available to contain the risks from higher burden-sharing, but were not pursued", echoing a line the IMF took in its 2015 report into Ireland's bailout.

Mr Cardiff declined to comment on yesterday's report, as he was not involved in preparing it, but will publish a book next month based on his evidence to the Banking Inquiry.

The audit also slammed the European Commission for its "generally weak" handling of the financial crisis.

It said it failed to spot a number of warning signs including the emergence of high budget deficits for Ireland and other countries.

The report focused on the EU executive's role in bailouts for five countries: Ireland, Portugal, Latvia, Hungary and Romania, between 2008-2014.

It found differences in how the countries were treated. It noted a lack of quality control of the data used, weak monitoring of reform pledges by various governments and shortcomings in documentation.

However, it said the commission did succeed in bringing about reforms and in adequately financing countries that found themselves temporarily locked out of capital markets.

A spokeswoman for the commission said that while it "accepts there were weaknesses" in the earlier bailout programmes, they "met their primary objectives" enabling countries to return to financial markets and economic growth.

Irish Independent

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