Tuesday 16 January 2018

ECB refuses to release 'threat' letter

Gavin Sheridan and Tom Lyons

It would undermine stability: Draghi

Mario Draghi, the president of the ECB, has refused to release the letter that "bounced" Ireland into the bailout in November 2010, because he claims it would "undermine" both the public interest and the financial stability of the State.

Mr Draghi and the executive board of the ECB took the decision to withhold the letter last Wednesday in the thick of ramping up pressure on Greek politicians to deliver on austerity promises.

The censored November 19, 2010 letter was sent by Mr Draghi's predecessor Jean-Claude Trichet to Brian Lenihan, the then finance minister, just nine days before Ireland applied for an EU/IMF bail-out. Mr Lenihan described the letter to party colleagues as "threatening" to withdraw ECB support for Ireland's banks unless he signed up to the bailout.

In a two-page letter dated February 8, 2012, Mr Draghi said the executive board of the ECB had "thoroughly," considered a public-access request to release the letter.

Mr Draghi said the ECB believed even partially releasing the letter "would undermine the protection of the public interest as regards the monetary policy of the union and as regards the stability of the financial system in a member state."

The ECB boss said the pre-bailout letter was "sent in the context of significant financial market pressure and extreme uncertainty on the prospect of the Irish economy, with substantial spillovers for the financial stability in the euro area as a whole".

"The confidential communication," he said, "was aimed at discussing measures conducive to protecting the effectiveness and integrity of the ECB's monetary policy and fostering an environment that ultimately contributes to restoring confidence among investors in the overall solvency and sustainability of the Irish financial sector and markets, which, in turn, is of overriding importance for the smooth conduct of monetary policy."

The ECB, Mr Draghi insisted, needed to be able to convey "pertinent and candid messages," to European and national authorities.

"Effective informal and confidential communication must be possible and should not be undermined by the prospect of disclosure," he said.

The importance of the letter first emerged in the Sunday Independent in September 2011. Former minister of state Billy Kelleher said Mr Lenihan told him the "ECB contacted him directly and threatened that if he did not request a bailout, they would cut off funding immediately to Ireland".

Greek politicians are under similar pressure from the ECB amid fears it will miss its debt-cutting targets.

German Finance Minister Wolfgang Schaeuble said last Friday that Greece's plans would leave its debt as high as 136 per cent of GDP by 2020, according to a Bloomberg report. That is significantly more than the 120 per cent foreseen in a €130bn bailout being negotiated. European finance ministers last Thursday night held back a Greek rescue package until further commitments on austerity were made by Athens.

Resolution of the aid talks, which have dragged on since July, would allow Greece to make a €14.5bn bond payment on March 20 and contain the threat that speculators would target debt-saddled nations, including Italy, Portugal and Ireland.

The release of the Trichet-Lenihan letter would have set a precedent that might have lifted the lid on the behind- the-scenes pressure being put on EU states to embrace austerity.

Sunday Indo Business

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