ECB gave Ireland an 'ultimatum' - Ajai Chopra tells Banking Inquiry
THE European Central Bank pushed Irish public debt higher, the man who designed and monitored Ireland’s rescue plan told the Banking Inquiry today.
Ajai Chopra, former Deputy Director of the International Monetary Fund, said this had happened because the EC and ECB often put euro-wide concerns “above what is appropriate for the individual member State even when this resulted in higher Irish public debt”.
Assistance from the ECB had been begrudgingly provided and Europe’s decision to solve each country’s financial problems individually worsened the crisis, he said.
Mr Chopra, who was appearing in a personal capacity and voluntarily before the committee, was high in his praise of Ireland and the Irish public servants for how they dealt with the crisis.
Read more: Chopra set to repeat criticisms of ECB
"The national should be proud of them," he added.
Ireland had an excellent record of policy implementation. The 12 quarterly reviews of the bailout programme were completed like clockwork which was rare and not normally accomplished.
Today is the final day of the public sessions of the Inquiry which has heard evidence from 128 witnesses over 49 days of public hearings and dealt with more than 50,000 documents.
Mr Chopra described Ireland's adherence to Troika programme as a "significant achievement" and said it "deserves much praise”
He said, however, that the lack of burden sharing resulted in Ireland shouldering a greater burden.
Europe’s decision to stop the burning of senior bondholders meant a "higher burden for Irish taxpayers and a higher public debt".
Mr Chopra, who was the designer of Ireland's bailout programme from 2010-2013, said he unwillingly had become the face of the bailout programme.
Ireland had eventually done better out of the bailout than he thought it would but it could have done even better if there had been a stronger overall macro-economic approach by Europe and greater European unity and solidarity, said Mr Chopra
He told Senator Marc MacSharry that looking back as he hoped things would unfold in November 2010 he did not expect that things would actually get worse at first and they did get "quite a bit worse for a while".
This was related to what was happening in the broader eurozone so that was a surprise. The government here was "swamped by conditions in the broader eurozone".
Once those conditions began to be addressed by the Eurozone "I think lIreland ended up doing better than I thought it would."
Mr Chopra explained that he would have favoured and even more gradual fiscal adjustment for Ireland.
Ireland had acquired a great deal of credibilty even before the process started, he said, but Europe was too focussed on rules and procedures.
Ireland had a "classic boom bust cycle" but the core of the crisis was very much a banking property boom type crisis.
Banking Inquiry chairman Ciarán Lynch in opening this morning’s final public session this said the inquiry had been fair and impartial as well as open and transparent.
“The banking crisis was, and remains, one of the most traumatic events in modern Irish history – it has impacted on homes, families and communities throughout our country.
‘Few were spared its effects and many are still suffering from them today.”
The final phase of the Committee’s work after today would involve the analysis and review of evidence and the compilation of books of core documents for publication with the final report, he added.
The former IMF Deputy Director said letters between ECB president Jean Claude Trichet and Finance Minister Brian Lenihan in 2010 showed Ireland was being issued with an ultimatum.
While it was within the ECB’s right to ask how the problems were going to be addressed “ultimatums are not the right way to conduct business.
“You have seen such ultimatums were delivered in the case of Ireland and more recently in Greece”.
He insisted that the ECB had exceeded its mandate by discussing Ireland’s fiscal policy and need for structural reforms.
Liquidity assistance was begrudgingly provided and its availability and stablility was not assured.
He felt a public statement would have helped restore confidence in the banking system.
Mr Chopra pointed to the IMF view that burning the senior bondholders was an issue that needed to be explored.
He also said it was a significant achievement for Ireland to exit to the bailout although some legacy issues remained.
Asked by Deputy Michael McGrath about burning the senior bondholders at the time of the bailout, Mr Chopra said there might have been about €16bn outstanding when the bailout programme started.
“As a rule of thumb if you discounted those by half you get about €8bn which is several percent of GDP.”
Mr Chopra explained that which it was not possible to be sure of the figures “I think it could have been a sizeable contribution - yes.”
Asked by Deputy Kieran O’Donnell about red and amber flags for the future, Mr Chopra felt that Ireland “right now” was in a “pretty strong position”.
At the same time balance sheets, especially household balance sheets were still stretched and banks were healing but not completely healed.
“My bigger worry would be the wider eurozone issues right now” he stressed.
Mr Chopra said that Ireland now had the policy and regulatory tools and “you should use them”.
Deputy Joe Higgins wanted to know if the losses had been allocated equitably in Ireland.
Mr Chopra said “where it might have fallen short is that there wasn’t sufficient burden sharing in senior bond holders”.
He did think “the Irish taxpayer did have to bear a disproportionate burden”.
The issue for the IMF was to encourage the government to be mindful of choosing measures that took equitability and social partnership into account.
It was for Irish people to judge if that had been successful.
Meanwhile, Mr Marco Buti of the European Commission has told the Banking Inquiry that the Irish government should have consulted its European partners before implementing the blanket Bank Guarantee,
Mr Buti , who has been Director General for Economic and Financial Affairs at the Commission since December 2008, said it was not for the Commission to judge what was ultimately decided.
It was clear the decision was taken in very difficult circumstances characterised by great risk and uncertainty and he did not envy those who had to make the decision.
His only criticism it was that the Irish government did not consult their European partners.
Mr Buti said the Guarantee was “ too generous. It magnified the impact of the fiscal crisis.”
It “heightened competition for bank funding at the moment of growing tension in financial markets across Europe”.
He said the EC had a limited role in monitoring countries’ fiscal plans and played no role in regulating and supervising domestic banks prior to any programme implementation.
This had changed when Ireland entered its bailout programme as the EC was part of the Troika.
Ireland’s crisis was home-grown.
The adjustment process had been a difficult one. He concurred with the view of many observers that if programme funding had not been available from international partners the economic adjustment and impact would have been "significantly stronger" for Ireland.
Mr Buti said the programme was largely successful in very difficult circumstances to reduce the burden on the less well off.
If the Commission could have done something more, “from what we know now of the social consequences we could have had a system which would have protected even more”.
On the decision not to allow the burning of the bondholders, Mr Buti said both Ireland and the Euro area as a whole were “in a life threatening situation” at the time, a situation of unprecedented uncertainty and going into something which could have increased substantially that uncertainty.
“Spill overs within Ireland would have been too risky”.
The Troika, he said, came to the common judgement that burning the bondholders was not the right thing to do. “The ECB was very forceful on that. With hindsight I think it was the right thing to do”.