Noonan given warning from Cardiff on ECB 'dependence'
NEWLY arrived Finance Minister Michael Noonan was warned by his most senior official that Ireland had a "dependency'' on the ECB which meant the country could take few independent decisions on the economy.
Meanwhile, it has also emerged that the Central Bank gave Noonan and his officials four different options for dealing with the banking crisis, including allowing several lenders to gradually close down or be "run off''.
A briefing note from the head of the Department of Finance, Kevin Cardiff, strongly emphasised how dependent Ireland was on the Frankfurt-based bank. In a section in bold writing, Cardiff told Noonan:
"It is essential that policies recognise our dependency on the ECB and the implications this has for our room for manoeuvre and capacity for independent action,'' said Cardiff.
His comments suggest any thoughts by Noonan of burning senior bondholders were likely to be met by strong resistance by the ECB, but also by his own officials. Another longer briefing note discloses that all Cabinet memos submitted by Ministers must now deal with potential knock-on effects on the IMF/EU programme.
This is because most proposals would have cost implications, which could clash with the IMF/EU plan.
Cardiff, who was previously head of the banking section, told Noonan that Ireland was now subject to "constant monitoring'' by the EU and IMF. Cardiff reveals he himself liaises with IMF/EU officials on a weekly basis.
The note shows that Mr Noonan and his officials were given four models for solving the banking crisis by the Central Bank:
- To allow the banks to sell off their assets according to their own timetable
- Attempt an "accelerated'' sell-off programme
- Alter the banking sector by "extracting'' the core assets out of AIB and Bank of Ireland and putting them into "new entities''. Good assets from other banks could be added to these new "entities'', with everything else gradually closed down or run off
- Alter the banking sector around AIB and Bank of Ireland, but use the existing entities rather than creating new ones.
Option 4 was eventually chosen and formed the centre piece of the proposals presented last week by Noonan. The banks' own option was described in the memo as "not radical enough''.
The briefing note also explains that IOUs given to Irish Nationwide and Anglo Irish by the government may not ultimately be paid off until 2031. These so-called "promissiory notes'' could however be paid off if the banks shut down fully, the note adds.