Business Irish

Saturday 7 December 2019

'Two weeks before Brian Lenihan died, he told me the ECB threatened they would cut off funding immediately to Ireland'

The late Brian Lenihan
The late Brian Lenihan

Daniel McConnell Group Political Correspondent

It was early summer 2011, and it turned out to be the last time Brian Lenihan would appear in Leinster House.

Gaunt, weak and clearly nearing the end of his days, it was clear to those he spoke to, Lenihan was saying goodbye in his own way.

But as first revealed by the Sunday Independent in September 2011, Lenihan also revealed to some Fianna Fáil colleagues that day of the extent of pressure he came under European Central Bank (ECB) boss Jean Claude Trichet directly.

My report, which ran on September 11 of that year, revealed all of the salient details of the Trichet threat, made public today in a report in the Irish Times.

Lenihan was 'threatened' into asking for bailout

Key players within that Fianna Fáil government revealed the circumstances of what happened.

"The letter landed in the department on the Friday afternoon/Friday evening (Nov 19). Mr Trichet was deeply unhappy about the level of funding from the ECB into Ireland. There was incredible pressure and he insisted Ireland would need to accept a bailout," Mr Lenihan's former advisor Dr Alan Ahearne told me.

"Two weeks before he died, we sat for coffee, and he told me that on the Friday evening (three days) before Dermot Ahern made his infamous 'fiction' remark, the ECB contacted him directly and threatened that if he did not request a bailout, they would cut off funding immediately to Ireland," former minister of state Billy Kelleher said at the time.

The letter was sent the day after Central Bank Governor Patrick Honohan went on RTE's Morning Ireland and blew the whistle on the plans to enter a bailout, which had been publicly denied by Government ministers.

We also revealed that, two days later and the day before Dermot Ahern dismissed talk of a bailout as "fiction", senior banking officials from the Department of Finance met with ECB officials in Brussels to discuss their "plans for Ireland".

"The ECB wanted to stuff the Irish banks with capital, overcapitalise them really, but it was clear that it would only happen if Ireland went into the bailout facility," Dr Ahearne added.

For more than three years, journalists like Gavin Sheridan and myself have appealed to information commissioners here and in Europe for the release of the full correspondence between Lenihan and Trichet, after the ECB and the Department of Finance refused to release it.

Under appeal, some of the initial correspondence was released but this key letter was repeatedly withheld.

In 2012, Finance Minister Michael Noonan told the Sunday Independent that he intended having his department release what he called a "very direct letter" to the planned Oireachtas Banking Inquiry.

Speaking this morning, Michael Noonan said it is a vital piece of documentation for the Inquiry which is up and running.

The letter from then ECB president, Jean-Claude Trichet, to former finance minister Brian Lenihan – marked “secret” – was sent on 19 November, 2010.

Its publication is due to be considered at a meeting of the ECB governing council today.

The letter states that the governing council of the ECB would only agree to provide further emergency liquidity assistance (ELA) to the banks if it received “in writing a commitment” from the government to apply immediately for a bailout.

It said that the request for financial assistance had to contain a commitment to budget cutbacks and a restructuring of the financial sector.

Also, it said that the restructuring plan must include the provision of the necessary capital to the Irish banking system and that the government had to agree to underwrite the repayment of the ELA to the Central Bank.

ELA was special funding provided to the banks who no longer were able to draw down normal ECB lending. Around €50 billion had been extended to Irish banks at the time – with additional funds approved by the ECB the day before.

A failure to continue this funding would have threatened their ability to stay open and provide cash to the public The letter was sent the day after Central Bank governor Patrick Honohan appeared on Morning Ireland to say Ireland had no option but to apply for support.

The ECB letter called for a “swift response” from the government.

Two days later, on November 21st, the formal application for the bailout was made.

The ECB council was due to consider the publication of the letter today, and it is thought they may also release earlier correspondence.

The ECB would be expected to argue that its financial exposure to Ireland and the risk that the money would not be repaid left it with no option but to try to secure its position.

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