Tuesday 27 September 2016

Former ECB boss Jean Claude Trichet rejects claims Ireland was 'blackmailed' Ireland into Troika bailout

Published 30/04/2015 | 15:25

Jean-Claude Trichet, former President of the European Central Bank pictured during his address to the Institute and International and European Affairs and members of the Oireachtas Banking Inquiry at the Royal Hospital Kilmainham.
Pic Frank Mc Grath
Jean-Claude Trichet, former President of the European Central Bank pictured during his address to the Institute and International and European Affairs and members of the Oireachtas Banking Inquiry at the Royal Hospital Kilmainham. Pic Frank Mc Grath

Former European Central Bank President Jean Claude Trichet rejected claims that the ECB "blackmailed" Ireland in November 2010 by forcing it into a Troika bailout.

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Mr Trichet is in Dublin attending an event hosted by the Institute of International and European Affairs (IIEA) and was responding to questions from members of the Oireachtas Banking Inquiry.

Under questioning from Socialist TD Joe Higgins at an event in Dublin, Mr Trichet said rather than force Ireland into a bailout, the ECB gave Ireland tremendous support, more than it gave to any other country.

"Sir, we helped Ireland more than any other institution. What we have done for Ireland was far more than any other country," he told Joe Higgins.

"Brian was thanking me for the help, it was the contrary to what you have said," Mr Trichet said.

However there was some strong criticism from within the membership of the Inquiry as to the limits of the Trichet event.

Fianna Fail Senator Marc MacSharry later said the failure of Mr Trichet to fully engage with the Inquiry committee was "demeaning".

Speaking to the Irish Independent, he said: "As enquiry members we naturally can't comment on the evidence given but while greatly appreciative to the IIEA and all involved in organising the event it was far from ideal."

"It was somewhat demeaning to the Inquiry, it's members and the oireachtas and above all Mr Trichet was not under oath like other witnesses.  So in that sense it was less than ideal," he added.

Earlier, Mr Trichet had denied he stopped the Irish Government from burning bondholders during the financial crisis, and said the ECB simply "advised" the Government against burning bondholders.

Jean-Claude Trichet, former President of the European Central Bank pictured before his address to the Institute and International and European Affairs and members of the Oireachtas Banking Inquiry at the Royal Hospital Kilmainham.
Pic Frank Mc Grath
Jean-Claude Trichet, former President of the European Central Bank pictured before his address to the Institute and International and European Affairs and members of the Oireachtas Banking Inquiry at the Royal Hospital Kilmainham. Pic Frank Mc Grath
Ciaran Lynch Chairman and members of the Oireachtas Banking Inquiry pictured before Jean-Claude Trichet, former President of the European Central Bank , addressed to the Institute and International and European Affairs and members of the Oireachtas Banking Inquiry at the Royal Hospital Kilmainham. Pic Frank Mc Grath
Mary Lou McDonald and Gerry Adams listen to Jean-Claude Trichet, former President of the European Central Bank during his addressed to the Institute and International and European Affairs and members of the Oireachtas Banking Inquiry at the Royal Hospital Kilmainham. Pic Frank Mc Grath
Jean-Claude Trichet, former President of the European Central Bank answers questions from members of the Oireachtas Banking Inquiry committee as Tom Arnold DG of the IIEA listens, after his address to the Institute and International and European Affairs and members of the Oireachtas Banking Inquiry at the Royal Hospital Kilmainham. Pic Frank Mc Grath
Finance Minister Michael Noonan and former president of the European Central Bank Jean-Claude Trichet

"The ECB simply gave advice on this issue, it was a matter for the Government," he said.

"It was a consensus view at European level that burden sharing was too risky a proposition to countenance at that time," he said.

He said it was a balancing act for the Government to decide what was in the best interests for the country.

Read more: Brian Cowen in charge on night of bank guarantee, ex Minister Lenihan was doing running around – ex BoI boss  

He said the risks associated with burning bondholders was too high, and the Government ultimately decided against it.

Finance Minister Michael Noonan has consistently said that his desire to inflict losses on senior bondholders in 2011 was thwarted by Mr Trichet and the ECB.

He has said that the ECB signalled that the emergency lending being extended to Ireland at the time was at risk, had he decided to burn the bondholders.

Read more her: Banking Inquiry: Ex ECB chief Trichet giving evidence  

Mr Trichet said it was easy to read those events with "today's glasses". 

He said no rules existed at the time as what to do. This lack of rules coupled with the lack of certainty made the situation very volatile.

He paid tribute to the late Brian Lenihan who he said bravely and courageously battled a terrible illness as well as trying to tackle the escalating financial crisis.

Speaking about the 2008 Bank Guarantee, he said the guarantee was introduced by Irish Government without any cooperation of any European partners.

Mr Trichet said the guarantee was a significant response to mounting pressures on Irish banks.

"I have to admit, one could understand why the decision was taken," he said.

Read more here: AIB ex-CEO throws light on our banking whodunnit  

He said the ECB was critical of some aspects of the guarantee because of the pressures it placed on the Sovereign.

He singled out the second guarantee in 2010 which he said put the Government into the inevitable position of seeking the bailout in November 2010.

He said much of Ireland's "painful adjustment" happened before the Troika bailout in November 2010.

Addressing an Institute of International and European Affairs (IIEA) event at the Royal Hospital Kilmainham, Mr Trichet lauded the "remarkable" progress in the Irish economy over the past four years.

He said the economy has "been recovering at an impressive rate" but said the causes of the 2008 crash still need to  be fully explored.

Read more here: Week 18: Greeks and house prices to take centre stage again  

He said there were years of "benign neglect" across the Eurozone in the years before the crisis.

He referred to the 9pc contraction in the Irish economy in 2009 alone and said that Irish people were subjected to "painful" adjustments to their living standards.

He said however, the reduction in wages helped to improve Ireland's competitiveness, and said that much of the progress in this area was made before the Troika bailout.

Mr Trichet said the main fault for the economic crash lies with national governments.

Mr Trichet added there were systematic warnings from the ECB repeated every month but these were "ignored".

Mr Trichet is to face questions from members of the Oireachtas Banking Inquiry this afternoon as to his and the ECB's role in Ireland's crash.

In an exclusive interview with the Sunday Independent in 2013, Mr Trichet said Ireland was not a "special case" and denied we were singled out for harsh treatment by the ECB.

"The rules in the ECB are that, all our decisions being collegial, the president goes to the European parliament and the governors of central banks go to the national parliaments."

Read more here: Trichet must tell if he threatened Ireland into paying bondholders  

Mr Trichet said Ireland was not a "special case" and denied that this country had been targeted unfairly by Europe.

He also defended the ECB's response to Ireland's desire to burn senior bondholders in Anglo Irish Bank in March 2011.

Throughout the interview, Mr Trichet repeatedly refused to deny that he had threatened to withdraw emergency funding to Ireland.

It has repeatedly been suggested that he told Finance Minister Michael Noonan and Taoiseach Enda Kenny in March 2011 that if the Irish Government tried to "act unilaterally" and impose losses on senior bondholders in Anglo Irish Bank, then he would withdraw the €150bn plus of emergency liquidity funding to Ireland.

Read more here: Chopra must give evidence - members  

Mr Trichet said: "That I will not say. What I will say is that (it was) the same message for all (countries). And a fact is that Ireland was supported more than any other country by far. This question misses an important point.

"The Governing Council of the ECB had been, was and continued to be much more forthcoming, in terms of supply of liquidity, with Ireland than with any other country in the euro system. My understanding is that the Government of Ireland at the time assessed rightly the systemic consequences of the decision it had to take."

Mr Trichet also strongly rejected the widespread perception that the ECB "bounced" Ireland into the bailout, saying the country received "fantastic support" from Frankfurt.

He said the level of support to Ireland was "many multiples" of that given to other countries and denied that Ireland was picked on or made a special example of.

Mr Trichet said: "Lending to Ireland was in many multiples to what was being given to other countries. So enormous support, and that is one of the reasons I am very surprised, I have to say, at this kind of discussion.

"The only thing that is absolutely clear, there was a fantastic support by the euro system as a whole for Ireland. The message was the same for all countries – all countries, without exception. And all countries reacted like Ireland.

Read more here: Banking inquiry: NAMA bosses step up to give evidence  

"There was not a special case there in terms of their (Ireland's) action with the Central Bank. Also, I wouldn't say there was any sort of quid pro quo. Lending to Ireland was in many multiples to what was being given to other countries."

Mr Trichet said that the discussions in relation to whether or not to allow bondholders to be burnt was done in consultation with all national governors, including Irish Central Bank governor Patrick Honohan.

"First of all, there is nothing in what I said that was not discussed with the Governing Council as a whole, including, of course, the governor of the Central Bank of Ireland. All the other – and I see in your question a mention of a phone call with one individual president of the Bundesbank and so on – this is absolutely not true. It was with all in the Governing Council (that) these issues were discussed."

When asked did he mean Governor Patrick Honohan, Mr Trichet responded: "Of course. The governor of the time, you know better. But all colleagues, all members of the Governing Council, including, of course, the governor of Ireland. The discussions took place with all governors, without exception, and not with one of them."

Under questioning from members of the Oireachtas Banking Inquiry, Mr Trichet rejected claims by the late Brian Lenihan that he phoned the finance minister, in mid September 2008, telling him not to let any bank go.

 In a 2010 RTE documentary, Mr Lenihan said clearly that he was warned by Mr Trichet not to let any bank go.

 "Mr [Jean-Claude] Trichet [ECB President] rang me, and hadn’t been able to get through to me. I was at a racecourse in County Kilkenny at a Fianna Fáil event on the Saturday. So I caught up with on Mr Trichet’s message the following day which was that ‘you must save your banks at all costs’.”

But responding to Labour Senator Susan O'Keefe, Mr Trichet denied he ever called Mr Lenihan.

 "No message to Brian, no message to the Government. All central bankers were saying to Governments no repeat of Lehman Brothers," he told Labour senator Susan O'Keefe.

 Mr Trichet said that he and the ECB learned of the

 "We learned of the guarantee from the media. I don't blame anybody, Ireland was one of the ships in the rough seas," he said.

 He said at the time Ireland was one of the most vulnerable banking sectors of any in the world.

 Under questioning from Ciaran Lynch, chairman of the Oireachtas Banking Inquiry, Mr Trichet said The ECB is only accountable to European Parliament, so it is not possible to participate in national parliament inquiries.

 "It does not prevent me from engaging with you today," he said.

 He said Irish banks as others encountered funding challenges from mid-2007 onwards because of the sub-prime crisis which began in the United States.

 Mr Trichet said solvency issues were not a problem at the time for us, but it was a matter for the Irish regulator. He said there was no indication from the regulator that the banks were insolvent at the time.

 There was an immense call for refinancing from the banks in Ireland at the time, he said.

 He said the refinancing extended to Ireland was without precedent.

 The Irish Government was not in contact with him, the ECB or any other Government in advance of the 2008 Blanket Bank Guarantee.

 Mr Trichet said it was clear from 2005 that Ireland was one of a number of countries who lost their competitiveness. He said this was not the fault of the ECB but the fault of the national Governments and the European Commission to a lesser degree.

 "You have  your own responsibility. We were not responsible for financial stability at the time. The stability and growth pact was not respected at the time," he said.

 But Mr Trichet said Ireland came out of the crisis quicker than other countries because of great flexibility shown by the economy.

 Responding to Senator Sean Barrett, Mr Trichet said the concerns in September 2008 about funding in Irish banks was similar to those being experienced by banks throughout Europe.

 "I was aware of the liquidity restraints in September 2008 in banks all over Europe. It was a general problem," he added.

 In the wake of the collapse of Lehman Brothers, he said we had the "House of Cards" of a global financial crisis.

Mr Trichet said that the Irish Government made the decision not to burn bondholders rather than the ECB.

"In 2010, burden sharing was very unwise course of action, there was a consensus.

The guarantee was initiative of Government of Ireland without any pre-discussion with anyone.

There was a consensus," he said.

"In 2011, there was a discussion, The overall risk to the goal of regaining international confidence justified the decision not to burn bondholders. We put 100pc of the GDP in terms of liquidity support, this was completely unheard of anywhere else," he said.

"We had discussed that it was unwise to do that. There was a feeling that Ireland was helped by the ECB more than any other country," he said.

Mr Trichet confirmed that he and the ECB expressed the view to the Irish Government.

Responding to Eoghan Murphy TD, Mr Trichet denied he threatened to withdraw ECB funding of Irish banks in March 2011, after the new Government had taken office.

"No certainly not," he said.

Mr Trichet said the ECB's Governing Council can restrict ELA provision by national Central Bank under art 14.4 ESCB law, if they think there is a threat to the Eurosystem.

Under firm questioning from Fianna Fail's Michael McGrath, Mr Trichet defended his role in the run up to Ireland's entry into the bailout, saying it was clear Ireland needed a plan to improve its credibility.

"It would have been impossible without this. I don't imagine for one second there would have been any press briefing on Ireland entering a bailout. Brian told me that. I have no evidence of that," he said.

Mr Trichet rejected claims by former Finance Minister Ray MacSharry in a 2014 book that he had initially agreed to allow Ireland burn bondholders but then changed his mind.

"Totally absurd," he told Ciaran Lynch who read from an essay by Mr MacSharry on Mr Lenihan.

Mr MacSharry wrote Mr Lenihan had rung him despondent after Mr Trichet had backed off allowing the Irish Government burn bondholders in 2010.

This was because he had earlier supported the idea, Mr MacSharry wrote.

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