Darling exposes turmoil in Irish cabinet ahead of bank guarantee
Taoiseach Brian Cowen and his finance minister, the late Brian Lenihan, were at loggerheads in the weeks leading up to the collapse of the banks in September 2008, former UK chancellor Alistair Darling reveals in his memoirs published yesterday.
While Mr Darling was taken by surprise when the former government guaranteed all deposits held in Irish banks, he says he had been aware of "disagreements" between the former Taoiseach and finance minister and knew that this was leading the Central Bank to become "increasingly frustrated".
Mr Darling says he only found out about the decision when he switched on the radio that morning.
"The Irish Government was effectively underwriting its banks in a way that no other country in the world had done," Mr Darling writes in 'Back from the Brink'.
"I knew full well that if the Irish Government's bluff was called they would be bankrupt. It was a promise on which they could never deliver."
Mr Darling says the decision "had been taken at something like 2am which smacks of panic rather than a plan".
He adds on the very first page of his book that the decision caused "disarray for everyone else in Europe" and says he spent the rest of the day discussing the Irish bailout with other finance ministers such as France's Christine Lagarde and Holland's Wouter Bos.
Ironically, the politicians feared there would a massive influx of deposits to Irish banks in the wake of the guarantee, something that happened in the first few days after it was announced.
Mr Darling, who was incensed by the guarantee because of the dangers it posed to British banks, told Mr Lenihan "in no uncertain terms that the FSA (Financial Services Authority) would have to take action if it became clear that that funds were flowing from Britain to Irish banks".
Mr Lenihan apologised for the decision, Mr Darling adds.
Describing Ireland and Iceland as part of an "arc of insolvency", Mr Darling writes that he was most concerned about the future of Bank of Ireland because the Irish bank owns the British Post Office's saving operations.
"I wondered how many people knew that the Post Office Bank in the UK is in fact Bank of Ireland," he says. "The closeness of the Irish banking system to the UK was a huge problem for us."
Irish banks had "gone in to property lending like there was no tomorrow" and British banks were endangered, especially Royal Bank of Scotland "which had a great deal at risk through its Ulster Bank".
Talking about Britain's decision to help bail out Ireland, Mr Darling says the UK has a "great deal of trade" with Ireland as well as Spain and Greece.
"That's why, during the course of 2010, both we and our successors knew full well that it was in our interests to contribute towards their rescue."