Bank guarantee was correct step to take -- Trichet
FORMER ECB President Jean-Claude Trichet has denied forcing Ireland's late finance minister Brian Lenihan to guarantee the banks.
"The decision was taken by your government," he told an Irish MEP yesterday.
The former European Central Bank (ECB) chief's role in the bank guarantee has long been controversial, with claims that Irish leaders were effectively railroaded by the ECB into bailing out banks and bondholders here in order to protect the wider euro system.
Yesterday Mr Trichet, pictured, told the European Parliament's Committee on Economic and Monetary Affairs that the Irish government had been correct to step in and guarantee the banks in September 2008, but said it was Ireland's decision.
The guarantee -- which ultimately cost taxpayers here €64bn -- was a "fully justifiable position given the very difficult circumstances they (the Irish government) faced," Mr Trichet said.
He was responding to a question from Fine Gael MEP Gay Mitchell, a member of the committee which is holding a number of sessions to analyse the work of the so called "Troika" of the IMF, ECB and European Commission.
"The decision was taken by your government, and probably rightly so, to say we don't attack our banks we are behind them, at a time when the credibility of Ireland was not put into question by markets," Mr Trichet said.
Irish authorities got the same advice as those elsewhere in Europe, he said.
"The message from the (European) Central Bank to Dublin was the same as the message from the Central Bank to Germany, to Belgium, to France, and we were at the heat of the crisis saying clearly, beware. We know what happens after we had Lehman Brothers."
Mr Trichet said the relative calm that has now returned to Europe could be attributed to the fact that all member states had shown that they did not want the euro to collapse, as well as because austerity programmes have gone ahead as planned, and because the ECB has been "constantly credible".
"It doesn't mean we are in an easy situation. It is the worst crisis since World War II. We are not out of the crisis and we still have a lot of hard things to do," he said.
Mr Trichet's handling of the financial crisis has been widely criticised, including for his decsion to raise interest rates after the global economy had faltered.
He told MEPs yesterday that he had warned European finance ministers of growing wage gaps between countries years before the financial crisis hit.
Mr Trichet told the committee that he had been warning the European Parliament as far back as 2005 that failure to follow the rules of the Stability and Growth Pact would cause "enormous problems".
He also said he had been pointing out to European finance ministers that unit labour costs had been "diverging dramatically".
"This was in front of all ministers of finance in Europe, constantly months after months," he said. "Of course we were seeing very clearly that there were divergences, it's not easy. It's very, very complicated."
A delegation of MEPs will visit Dublin from tomorrow for a two-day visit to hold meetings with the Government, Central Bank governor Patrick Honohan, civil society and business groups, unions and the State's budgetary watchdog, the Fiscal Advisory Council.