Sunday 29 May 2016

Revealed - the Troika threats to bankrupt Ireland

Honohan: ECB officials agreed to threaten Ireland with bankruptcy if the government tried to burn bondholders

Published 28/09/2014 | 02:30

Patrick Honohan
Patrick Honohan

Senior European and European Central Bank (ECB) officials agreed to threaten Ireland with national bankruptcy if the government made any attempt to burn bondholders, the Sunday Independent can reveal.

The threat was made at a high-level teleconference meeting, details of which have been revealed for the first time by the Central Bank governor, Dr Patrick Honohan.

Mr Honohan, who famously told the nation Ireland would be entering the Troika bailout programme live on radio as government ministers were publicly denying it, also revealed he was kept out of loop about the meeting.

In a new book about the late Brian Lenihan, Mr Honohan said he only found out about the meeting after the Troika delivered the ultimatum to Mr Lenihan on November 26, 2010.

"The Troika staff told Brian in categorical terms that burning the bondholders would mean no programme and, accordingly, could not be countenanced," Dr Honohan writes. "For whatever reason, they waited until after this showdown to inform me of this decision, which had apparently been taken at a very high-level teleconference to which no Irish representative was invited."

Dr Honohan's revelations will add more fuel to claims that Ireland was "bullied" into the bailout.

They are also likely to lead to growing demands here for former ECB president Jean-Claude Trichet, who played a central role in the Irish bailout and the handling of the Eurozone crisis, to appear before the banking inquiry over the coming months.

The ECB last week came under renewed criticism for failing to publish a letter sent by Mr Trichet to Mr Lenihan during the same period of November 2010, despite a request from the European Ombudsman, Emily O'Reilly.

ECB president, Mario Draghi, last week told Irish MEP Brian Hayes the bank would discuss the question of Mr Trichet's possible appearance before the banking inquiry, and that he could have a response by November. Mr Hayes subsequently said that if Mr Trichet cannot attend the banking inquiry, the ECB should "provide documentation and, where relevant, officials" to assist the inquiry.

Meanwhile, former European commissioner Olli Rehn yesterday said he would "consider seriously" appearing before the forthcoming banking inquiry if he is asked to do so.

Mr Rehn, who stepped down as Commissioner for economic and monetary affairs in July, said decisions made by the ECB and the European Commission were taken when euro zone economies were "in a freefall".

Speaking on the Marian Finucane Show, Mr Rehn said that while he was not very familiar with the proposed banking inquiry, "it is both reasonable and useful that in Ireland a profound analysis of the crisis will be done".

The book, Brian Lenihan: In Calm and Crisis, extracts of which appear in today's Sunday Independent, was commissioned by friends and family and contains essays on his handling of the crisis by colleagues, including Dr Honohan and IMF chief Christine Lagarde, who was then finance minister of France.

In one extract, Dr Honohan reveals that the Troika appeared to be considering "burning" some senior bondholders in the negotiations which followed Ireland's application for a bailout.

Dr Honohan was involved in the ECB decision to press Ireland to ask for a bailout and supported it, because of the enormous growth in emergency loans from the Central Bank to the banking system from the middle of September.

He says government reluctance to apply for a programme explains his dramatic interview on RTE's Morning Ireland on November 18, 2012, saying that Ireland would go into a bailout, but he did not realise other cabinet ministers had not been kept informed of what was happening.

"Things had got to the point where, had it remained silent on the state of play, the Central Bank would have not only failed in its responsibility to use timely communication to steady confidence, but would also have dashed a legitimate public expectation in Ireland that the Bank could be trusted not to deceive through omission," Dr Honohan writes.

"What had not occurred to me was that Brian might not, even by that stage, have communicated to some of his senior ministerial colleagues how far down the road the discussions had already gone.

"Clearly, the interview was inconvenient for him, but he understood, as he confirmed to me then and later, that my sole aim was to work in the national interest."

Sunday Independent

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