Former Minister for Finance Brian Lenihan had "a loaded gun pointed in his ear” when it came to the ECB letter sent to the Irish Government in 2010, a leading economist has said.
Chief Economist of the world’s largest bond trading firm Pimco, Paul McCulley said the late Minister for Finance had" very little choice" when it came to the ECB’s letter to the Irish Government.
The secret letter, sent on 19 November 2010, threatened to cut off all funding, unless Ireland immediately applied for a bailout.
The letter was sent by then ECB President Jean Claude Trichet to the former Minister for Finance Brian Lenihan.
The letter was sent on November 19, 2010, stating that the Governing Council of the Bank could only authorise further liquidity funding assistance (ELA) to Irish banks if it received a commitment in writing from the Irish Government it would send a request for financial support to the Euro group.
Speaking on Morning Ireland today, Pimco Economist Paul McCulley said that while most people had speculated what was in the letter, to actually see the contents was shocking: "To see it in black and white was nothing more than a firearm stuck in the ear [of the Government].
He said the former Minister for Finance had no options when it came to the ECB threats in the letter.
“You do whatever you do when you have a gun in your ear – you hand over your wallet. You are not suppose to feel good about it. But it is the logical and rational thing to do at that moment.
"After that moment passes, you had redress from the standpoint of 'I really don’t like the idea of having a firearm stuck in my ear'. Six years later, we are now seeing a picture of the firearm emerging. I assume there is a fair amount of indignation in this country.
Speaking on Morning Ireland, Mr McCully said he couldn’t guess if the ECB was bluffing.
“It is hard to know if they were bluffing because they no choice. Again my analogy of having a firearm in the ear is a fair one. The gun may have an empty gun but do you want to bet on it?”
He said that Ireland’s debt should be “extended, modified and rolled so as to soften the blow of it”.
It is understood there are three other letters in the correspondence between Jean Claude Trichet and Brian Lenihan in October 2010 and November 2010. The Governing Council of the European Central Bank is meeting today and the potential release of the letters is expected to be on the agenda.