Judicial review of ECB actions better than seeing Trichet before Oireachtas
The bank's statute contain provisions for a hearing at the European Court of Justice, writes Colm McCarthy
IN his recent book, The Price of Power, Pat Leahy reports on the events of March 31, 2011, when the newly elected Fine Gael/Labour Government was frustrated by the ECB in its efforts to impose losses on the unguaranteed and unsecured bondholders in two defunct banks, Anglo Irish and Irish Nationwide. Anglo Irish had lost almost half of its loan book, Irish Nationwide an even larger proportion. Both banks had ceased trading, were being wound down and have since been liquidated. The creditors of these banks included holders of bonds which were unsecured and which did not enjoy a guarantee from the Irish Government.
The State had already lost the capacity to borrow in the sovereign credit markets, partly because of debts incurred rescuing bank creditors and had been forced into an EU/IMF three-year emergency financing programme five months earlier. There were concerns that the overall Irish debt burden would prove to be unsustainable.
According to Leahy, the Government planned to impose losses on the unsecured and unguaranteed bondholders in the banks which had been closed. Had the Government done so, its liabilities would have been reduced by several billions of euros and the value of its support to the surviving Irish banks enhanced. The solvency of the surviving banks would have improved since their guarantor, the Irish Government, would have benefited from the savings in not paying bondholders. But ECB president Jean-Claude Trichet objected, threatening to withdraw liquidity support to the Irish banking system which would have resulted in a disorderly collapse of the surviving Irish banks.