Cowen and Lenihan ignored ECB calls for early budget
Taoiseach Brian Cowen and his Finance Minister Brian Lenihan ignored persistent calls last summer from the European Central Bank to bring forward the 2011 Budget as market confidence drained from Ireland in the run-up to the EU-IMF bailout.
And while the Taoiseach and his ministers lounged in their holiday homes in Ireland and elsewhere, the market that never sleeps was pushing Ireland's borrowing rates out of reach.
But for the jaded politicians nothing could be allowed to interfere with the long summer break -- not even a crisis that would ruin the reputation of the country.
A senior ECB official has revealed that a repeated failure to act decisively during 2010 in the wake of the Greek crisis, ultimately led to the crisis which caused Ireland to go for the EU/IMF bailout.
Lorenzo Bini Smaghi, an Italian official of the ECB based in Frankfurt, has revealed that in comparison to 2009, when the government moved swiftly to address the fiscal problems, during 2010 there was a total and repeated failure to act.
"Markets waited and waited and since they saw no policy reactions they started to lose confidence in the course of the summer. Remember there was a downgrade -- in August -- but there was no policy reaction, no announcement that a tough budget was in preparation and no announcement of the measures. The loss of confidence also affected the banking system and this created a spiral which led to the crisis and in the end the request for financial assistance" he said in the Irish Times yesterday.
He said: "It's difficult to recreate history, but certainly in 2009 when the Government announced bold measures, this had a very strong impact on the markets. This kind of boldness was not repeated in 2010. On the contrary, the impression was that actions were delayed while uncertainties about what [would be done] increased."
He said senior figures at the ECB, including chief Jean Claude Trichet, made several attempts in private conversations on the margins of the European meetings to urge Mr Cowen and Mr Lenihan to move swiftly. "We took all the opportunities to tell the Irish Government that they had to take bold actions very quickly... the response was that the budget would be presented in time, in line with the Irish parliamentary procedure, in early December. But the markets did not wait."