McSharry: We saved Europe, and we got no thanks for it!
Former Finance Minister Ray MacSharry explains how Ireland was used to save the Euro - and how we got no thanks from the ECB
Not many people realise that what Brian Lenihan and Brian Cowen did on the night of the bank guarantee actually saved the euro. I do not think the two Brians comprehended this fully themselves either at that time because they didn't utilise the leverage it gave them. The bank guarantee was about preventing a run on the Irish banks which would have wiped them out, but if the Irish banks had gone under, this would have spread to banks in other eurozone countries as well as in the UK.
If the Irish banks had collapsed in September-October 2008 there would have been a domino effect across Europe and the other European Union countries would have recognised this. The other EU countries were let off the hook that night. They could not allow our banks to fall, no more than we could. It was an incredible mistake on the night of the guarantee not to talk directly to the main EU players - maybe they did, I do not know - and put it up to them by saying 'we are not guaranteeing here unless you do something for us.' The Government could have cut a deal rather than taking on the full responsibility of the guarantee itself. Instead, the Irish Government gave a State guarantee for all deposits and almost all debts of Irish banks, with a total liability of more than €440 billion.
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Brian had been keen to burn the big bondholders and we discussed this on a number of occasions. One morning I got a call about a quarter past eight and it was Brian. He told me that he was able to burn the bondholders and he was very happy because the European Central Bank President, Jean-Claude Trichet, had told him he could do it.
But later that day a now despondent Brian rang me back. He said Trichet had changed his mind because he realised that the main casualty if the bondholders were burnt would be big German and French banks. This was a disgraceful decision because the ECB is supposed to represent the interests of Europe generally, but they were clearly under the sway of the German and French banks.
I do not think that the ECB behaved even-handedly towards Ireland or Brian Lenihan. I know that Brian said in an interview with BBC Radio 4 shortly prior to his death that the ECB had threatened him verbally and in writing about what would happen if Ireland refused to accept the bailout without burning bondholders. Mr Trichet has said that these letters should not be made public, but undoubtedly they will have to be considered by the banking inquiry and I suspect they will make very interesting reading.