The burning of bondholders at the time of the economic crisis was effectively stopped by ECB boss Jean Claude Trichet, a former Finance Department Secretary General has told the Banking Inquiry.
John Moran told how in March 2011 Finance Minister Michael Noonan was preparing to go into the Dail and make an announcement about restructuring of the system.
There were on-going negotiations with the ECB right up to the minute “or even the minute after” the speech was due.
Asked by Deputy Michael McGrath if Mr Trichet had threatened to withdraw funding from the Irish banks if the bondholders were burned, Mr Moran said he was not in on the phone call and wasn’t going to ascribe words to anyone.
He could only say the Minister and the Government were anxious to take the decision and “the only person stopping them essentially that I could see at that stage was the person on the end of the phone”.
Mr Moran told the inquiry that the “sad reality” was that “an acute lack of fiscal capacity at Government level removed flexibility in easing the impact” of the property price collapse.
Even now “the reality of the situation in 2015 is that we are spending more money than we are paying into the system. We are still putting debt on future generations for us to live”.
Mr Moran, who was Secretary General from 2012-14, insisted that the “fiscal rectitude we are experiencing” was a necessary result of the “terrible and perilous structure” of Ireland’s taxes and spending.
If Ireland had not had to fund large fiscal deficits, he added, “it might have helped to avoid being shut out of markets and to have avoided a troika bailout entirely”.
Mr Moran also questioned why there had not been a more sustainable structuring of the tax system and a rainy day fund for unemployment put aside.
He asked why no political party manifesto had contained proposals for the introduction of property taxes, water charges and sustainable taxes to pay for public services and reduce public sector pay to long term sustainable levels.
“When we say the Irish public were blameless, would we have voted for such a Government in the 2007 election?” he added.
Burning the bondholders would have reduced the €6bn deficit bill of the first year of austerity by €3bn,
As the deficit continued, we would still have had additional new borrowings of 3 billion each year thereafter, he stressed.
Furthermore, when bondholders were repaid, they were repaid essentially from funds borrowed by the banks themselves.
Mr Moran found it surprising in 2011 how little debate on strategic issues could be led publicly by civil servants.
In his own case he had suffered “unacceptable interference by the media into his personal life “when I dare to stimulate discussion on key choices facing our urban planners.’