Saturday 29 April 2017

ECB failed to tell Brussels why it kiboshed plans to burn bondholders in bailout - EU report

European Court of Auditors also found European Commission failed to see warning signs in Irish economy

Jean Claude Trichet: laid down law to Noonan
Jean Claude Trichet: laid down law to Noonan

Sarah Collins in Brussels

The European Central Bank failed to share its reasons for blocking burden sharing with senior bondholders under Ireland's bailout, the EU’s auditors have said.

And the report was also critical of the European Commission's role around the time of the bailout and its failure to spot warning signs in the run up to the financial crisis.

It quoted a Commission report on the Irish economy from March 2008 which found that ‘the risks attached to the budgetary projections are broadly neutral for 2008’.

In a first-of-a-kind probe into EU bailouts published today, the European Court of Auditors - the bloc’s budget watchdog - acknowledged the International Monetary Fund's finding that “alternative policy actions were available to contain the risks from higher burden-sharing, but were not pursued”.

The report says that although the ECB’s advisory role in eurozone bailouts was “very broad”, it did not extend to sharing documents or analysis with the European Commission or the IMF.

“Providing advice did not mean, however, that the ECB supplied the other partners with the analysis underlying its position in programme talks,” the report said. “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.”

Given the level of support the ECB was providing to Irish banks - almost 100pc of the state’s GDP at the time - the auditors say that it was “essential to the success of the programme”.

The auditors were examining the Commission’s management of financial assistance provided to five EU countries - Ireland, Portugal, Latvia, Hungary and Romania - including a EUR22.5 billion loan to Ireland that formed part of the larger 2010 bailout.

Jean Claude Trichet was president of the ECB at the time.

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