Monday 19 November 2018

‘The ECB letter was a gun stuck in the ear of the Government’ – leading economist

Paul McCulley, of PIMCO
Jean-Claude Trichet, former president of the European Central Bank
The late Brian Lenihan
Irish Finance Minister Brian Lenihan attends a EU finance ministers meeting in Brussels on November 28, 2010
Brian Lenihan reads a paper as he waits for the start of a round table meeting of EU finance ministers at the EU Council building in Brussels on Sunday, Nov. 28, 2010
Members of the public watch former Finance Minister Brian Lenihan deliver the government's four year Budget Blueprint on a TV screen in the window of Foleys pub in Dublin city centre in 2010
Brian Cowen with Brian Lenihan (right), on Monday November 22 2010
Taoiseach Brian Cowen reacts as the Minister for Finance Lenihan speaks to the media in Government Buildings Dublin on November 21 2010
A protestor waves the Irish tricolour outside Government Buildings, Dublin, after the Irish Government confirmed it will seek a bailout loan from the International Monetary Fund on Sunday November 21, 2010
Taoiseach Brian Cowen (left) and Finance Minster Brian Lenihan (right) address journalist during a press conference in Government Buildings, Dublin, after the Irish Government confirmed it will seek a bailout loan from the International Monetary Fund (IMF) and Europeon Sunday November 21, 2010
Finance Minister Brian Lenihan leaves an European finance ministers meeting at the EU Council in Brussels, Wednesday Nov. 17, 2010
Finance Minister Lenihan arrives at an euro zone finance ministers meeting in Brussels. on November 16, 2010
Central Bank Governor Patrick Honohan on his way into the Dail on Wednesday November 10, 2010
Minister for Finance Brian Lenihan (left) holds a joint press conference with EU Commissioner Olli Rehn at the Department of Finance in Dublin on Monday November 8, 2010.
Independent Newsdesk

Independent Newsdesk

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 late Brian Lenihan
The late Brian Lenihan

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.

A street artist's picture of a traditional Leprechaun is daubed on a wall of an empty building in the docklands area on 1 December, 2010 in Dublin
A street artist's picture of a traditional Leprechaun is daubed on a wall of an empty building in the docklands area on 1 December, 2010 in Dublin
Irish Actor, Barry Mcgovern performs "Eat the Children" as part of A Modest Proposal, inspired by Jonathan Swift and the EU/IMF Deal, the enough campaign and Richard Boyd Barrett, T.D, presented a modest proposal to assist the Irish Government in its financial difficulties in 2011
Ajai Chopra, deputy director of the IMF;s European Department and Istvan Szekely from the European Commisson during a press conference in 2011
Ajai Chopra, deputy director of the IMF;s European Department looks across at Istvan Szekely from the European Commisson during a press conference in April 2011
Ashoka Mody of the IMF outside the Department of Finance on 10/1/2011
Meave McCarthy from Dublin outside the Dail after the government approved the EU IMF rescue dealon 15/12/2010
Coucillor Richard Boyd Barrett, People before Profit speaks outside the Dail after the government approved the Eu IMF rescue deal on 15/12/2010
Irish Finance Minister Brian Lenihan attends a EU finance ministers meeting in Brussels on November 28, 2010
A man walks past a shop selling clothing with slogans relating to the Irish government bailout by the IMF Dublin on November 29, 2010
Mary Coughlan leaves the election count in Donegal.on Friday November 27 2010
Crowds gather in front of the General Post Office Building on O'Connell Street on November 27, 2010
Brian Lenihan reads a paper as he waits for the start of a round table meeting of EU finance ministers at the EU Council building in Brussels on Sunday, Nov. 28, 2010
Ajai Chopra Dept Director of the IMF European Department and Ashoka Modi from the IMF walks to the AG office on 27 November 2010
Brian Lenihan deliver the government's four year Budget Blueprint on a TV screen in the window of Foleys pub in Dublin city centre on Wednesday November 24, 2010
A woman walks her dog past a graffiti in South Dublin November 23, 2010
Brian Cowen, with Brian Lenihan (right), giving a statement to the waiting media on the steps of Government Buildings in Dublin on Monday November 22 2010
A protestor outside Government Buildings in Dublin on Sunday November 21, 2010
A protestor outside Government Buildings in Dublin on Sunday November 21, 2010
Brian Lenihan speaks to the media in Government Buildings Dublin November 21, 2010
Daisy Gogarty (18 months) yawns in the arms of Green Party TD Paul Gogarty as leader John Gormley (far right) gives a press conference calling for a general election on Monday November 22, 2010
Taoiseach Brian Cowen with his front bench colleagues holds a press conference in Government Buildings on Monday November 22 2010
Protestors outside Government Buildings in Dublin, on Sunday November 21, 2010
A protestor waves the Irish tricolour outside Government Buildings, Dublin, on Sunday November 21, 2010
Taoiseach Brian Cowen (left) and Finance Minster Brian Lenihan (right) address journalist during a press conference in Government Buildings on Sunday November 21, 2010
Ajai Chopra, left, Deputy Director of the European Department of the IMF and an unidentified colleague make their way to the the Central Bank of Ireland for crucial talks with the Irish government in Dublin, Ireland, Thursday, Nov. 18, 2010
Brian Lenihan on Wednesday Nov. 17, 2010 in Brussels
Brian Lenihan arrives at an euro zone finance ministers meeting in Brussels on November 16, 2010
Central Bank Governor Patrick Honohan on his way into the Dail on Wednesday November 10, 2010
Minister for Finance Brian Lenihan (left) holds a joint press conference with EU Commissioner Olli Rehn at the Department of Finance on Monday November 8, 2010

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].

Jean-Claude Trichet, former president of the European Central Bank
Jean-Claude Trichet, former president of the European Central Bank

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.

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