| 12.1°C Dublin

Cabinet got no say on guarantee: Willie O'Dea

Former Defence Minister Willie O'Dea has revealed for the first time how the last Cabinet was bounced into issuing the bank guarantee, which has given a "blank cheque" to holders of senior bonds in Irish banks.

Mr O'Dea said a 'fait accompli' on the disastrous €440bn guarantee was presented by then Taoiseach Brian Cowen and Finance Minister Brian Lenihan to other ministers at 1am on the night in question.

Mr O'Dea's revelations give the clearest insight to date of the deep unease among some cabinet members about the decision, which has culminated in the virtual wipeout of the Irish banking system and has left the country at the mercy of Europe.

He said yesterday that during the call on the night of September 29/30, 2008, there was no discussion and he was presented with no option but to agree to the decision, which he, and presumably all other ministers, were told had to be made before markets opened the following morning.

"I was 140 miles away in Limerick. I got a call, there was no debate. I would have welcomed discussion at cabinet, but I was told this had to be done before the markets opened," he told the Sunday Independent yesterday.

The decision by Mr Cowen and Mr Lenihan to offer a blanket guarantee was yesterday described by former EU Parliament President Pat Cox as the "most reckless single decision in the history of the State whose legacy we will live with for a very long time".

Mr Cox said that it was incredible that the decision was taken "in the small hours of that morning and was made unilaterally" without any consultation with our European partners. Yesterday, the influential Lex column in the Financial Times said: "In the Irish case, senior bondholders have been given a blank cheque by Irish taxpayers: the result of an Irish Government decision in late 2008. No other Government is likely to make that mistake." Mr O'Dea's revelations and Mr Cox's comments echo Finance Minister Michael Noonan's description of the guarantee in the Dail last Thursday.

"Tuesday September 30, 2008 will go down in history as the blackest day in Ireland since the Civil War broke out," he said. "September 30, 2008 was the date on which the then government extended the infamous guarantee to the Irish banks and decided that Anglo Irish Bank should be supported and maintained."

Given the additional top-up of €24bn into the banks on Thursday, the lack of proper cabinet discussion or approval on the night of September 29, 2008, has once again become an issue of controversy.

Last Thursday's dramatic U-turn by the Fine Gael/Labour government on its election promise to burn the bondholders was done as a last-minute trade-off for continued cheap European Central Bank funding for Irish banks, the Government claimed last night.

According to European sources last night, Ireland's 12.5 per cent corporation tax rate is likely now to be "parked" as an issue, given the surrender on burden sharing by the Government.

The trade-off came during discussions between Finance Minister Michael Noonan, Taoiseach Enda Kenny and ECB chief Jean-Claude Trichet on Wednesday and Thursday.

Finance Minister Michael Noonan insisted that the decision on bondholders was taken to secure a commitment to continue the funding to Irish banks at 1 per cent for the foreseeable future.

"The commitment to continue funding is there, the markets will see that," he told the Sunday Independent. To date, the ECB has lent Irish banks in excess of €150bn in emergency overnight funding.

Despite its clear signalling last weekend that it would establish some form of medium-term lending arrangement to replace the current need for emergency funds, the ECB failed to deliver on a formal structure last Thursday. Instead, the ECB lifted lending restrictions on Ireland and said it would continue to accept Irish bonds despite repeated downgrades.

According to sources in Europe, in return for backing down, Ireland is also expected to secure a 1 per cent reduction in the interest rate applied to our bailout at a meeting of finance ministers in Budapest next weekend.

Speaking yesterday on RTE radio, Mr Cox said that in negotiations relating to the ECB/IMF bailout, Ireland should insist on "a parity of treatment with Greece" which has been given an interest rate cut. "We've done our lifting and they have to do their lifting now", he said.

Mr Noonan has confirmed to this newspaper that he intends clearing out the boards and senior managers of the banks who were there in the run-up to the crash of September 2008.

Speaking exclusively to the Sunday Independent, Mr Noonan said: "I have agreement from the Government to substantially enhance the banking side of the department to oversee the now largely nationalised banking sector. It is inevitable that there will be significant changes to the boards and to the senior managers of the banks."

This is likely to mean nine of the current members of Bank of Ireland's Court, including CEO Richie Boucher and retail boss Des Crowley, are likely to be asked to step down as they have been in place since before the 2008 crash. Three current members of the AIB board have been in place during the run-up to the bank guarantee.

Mr Noonan has asked Financial Regulator Matthew Elderfield to draw up a new salary regime for senior bankers under State control, and has said bonuses have no part in banking while they remain dependent on State assistance.

It has also emerged that the report into the causes of the banking crisis by Finnish civil servant Peter Nyberg has been handed in to Mr Noonan, who has referred it to the Director of Corporate Enforcement Paul Appleby.

Most Watched