Sunday 20 October 2019

Letter reveals ECB funding 'threat'

Jean-Claude Trichet warned Ireland crisis funds propping up collapsed banks in 2010 would be withdrawn unless they asked for a rescue package
Jean-Claude Trichet warned Ireland crisis funds propping up collapsed banks in 2010 would be withdrawn unless they asked for a rescue package

A top level threat to cut emergency European funding to Ireland days before the country sought a humiliating international bailout will shock people, one of Dublin's most senior Government ministers has said.

Letters released today by the European Central Bank (ECB) confirm the Irish Government was warned crisis funds propping up collapsed banks in 2010 would be withdrawn unless they asked for an 85 billion euro rescue package.

The missive from then-ECB president Jean Claude Trichet to the late former finance minister Brian Lenihan also demanded a written commitment to punishing austerity measures, spending cutbacks and an overhaul of the financial industry.

Irish high street banks were surviving on emergency funding - known as emergency liquidity assistance (ELA) - at the time and if stopped, it could have effectively shut down the property crash-ravaged lenders.

Mr Trichet urged a speedy response to his proposals, which have been interpreted by some as the Frankfurt central bank pushing Ireland into a bailout.

"It is the position of the (ECB) Governing Council that it is only if we receive in writing a commitment from the Irish government vis-a-vis the Eurosystem on the four following points that we can authorise further provisions of ELA (Emergency Liquidity Assistance) to Irish financial institutions," Mr Trichet wrote.

The four points included Ireland seeking a bailout, agreeing to austerity, reforming banks and guaranteeing to repay emergency funds.

Two days after the letter was sent on November 19 Ireland officially requested a rescue package from the ECB, the International Monetary Fund and the European Commission.

Brendan Howlin, Ireland's Public Expenditure and Reform Minister, said the letters - published after a years-long campaign for their release - would "come as a shock to many people".

Speaking about the ECB's approach to Ireland, Mr Howlin said the present government was aware of the "demands and pressures that they put us under at that time".

Mr Lenihan was battling cancer at the time and later died from his illness.

Tanaiste Joan Burton said the letters are "certainly very poignant in that context".

The Labour leader said she hoped the publication of the letters would free some people to speak more freely about exactly what happened within government on the days leading up to the bailout.

A number of Fianna Fail government ministers at the time said they had no knowledge of the imminent arrival of the ECB/IMF/EC troika into the country.

Finance Minister Michael Noonan said the letters speak for themselves and would be vital to an upcoming banking inquiry.

The parliamentary inquiry into Ireland's financial collapse is expected to start this year and finish its work by the end of next year.

The ECB said it has released the four letters after a request from the European Ombudsman Emily O'Reilly, a former ombudsman and information commissioner for Ireland.

Others, including journalists, had fought for the correspondence to be released through right-to-know, or freedom of information, legislation.

Frankfurt said the letters show that it was home-grown problems in Ireland that bounced it into a bailout rather than ECB pressure.

A spokesman said: "As the letters and all the documentation aim to show, it was not the letter that 'pushed Ireland into a programme' as is sometimes claimed, but it was the scale of the domestic crisis that made it necessary for Ireland to apply for an EU/IMF adjustment programme.

"The documentation also shows that in the run-up to the application for support and throughout the Irish programme, the ECB has continued to support the Irish banking system and the Irish economy in an unprecedented manner."

Mario Draghi, the current president of the ECB, said the four published letters gave the "whole story" about Ireland's decision to seek a bailout - which he said "wasn't that stupid".

"The decision to ask for a programme was the government's decision, it was not the ECB forcing the government to do this," he said.

"But I think the four letters show exactly the sort of dialogue that took place between the government and the then president of the ECB, Jean-Claude Trichet, so for me there is very little to add to that."

Mr Draghi added: "Subsequent events, the extraordinary performance of Ireland - next year Ireland will be the fastest growing economy in Europe, in the euro area certainly - seem to say the decision wasn't that stupid."

PA Media

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