ECB's actions helped fuel run on Irish banks, says Chopra
Former IMF executive Ajai Chopra says actions taken at the European Central Bank (ECB) helped fuel a run on the Irish banks back in 2010.
Mr Chopra said there was evidence that "ECB officials made public their disquiet about ECB funding for Irish banks by briefing market and analysts, thus fuelling the bank run".
In addition, he said ECB threats at the time to cut off funding to Irish banks if the country resisted signing up to the bailout were unnecessary.
The ultimatum, delivered in former European Central Bank (ECB) chief Jean Claude Trichet's November 2010 letter to the late Brian Lenihan, was "gratuitous", according to Mr Chopra.
"Work was already underway to a agree on a programme," the former head of the IMF mission to Ireland said in a presentation sent to members of the European Parliament this week.
"The ECB put protection of its own balance sheet before cost to the Irish taxpayer," he said.
The role of the ECB in providing emergency loans to failing bank during the crisis, often at the cost of conditions being imposed on national governments, has led to a "politicisation" of the Central Bank, Mr Chopra said.
As the central bank to countries including Ireland, the ECB should never have been part of the Troika but should have sat on the other "side of the table".
Yesterday, however, the President of the European Central Bank, Mario Draghi, defended its role in the Irish bailout, telling MEPs not to "blame fire damage on the firefighters".
Mr Draghi said the Irish banking crisis was entirely home-made.
Efforts to burn bondholders would have been fraught with difficulty because, at the time, there were no rules or procedures for bailing in creditors, nor were there institutions like the ESM and the single supervisor for dealing with bank collapses, he added.
He said it was not right to judge actions taken in 2010 by the standards of what is available now for dealing with banking crises.
The ECB chief also said that the amount of money that could have been bailed-in from unsecured creditors of Irish banks was very small compared to the losses that private investors had already suffered in the collapse of the Irish banks.
"Let's not forget the whole banking crisis was entirely home-made. It was exacerbated by a series of decisions taken by the government of the time, and taken before the ECB got involved," Mr Draghi told the European Parliament.
"The formal burning of senior bondholders was not a decision taken by the ECB but taken by the Irish government."
He said it was "very difficult to judge actions taken at the time with the eyes of today".
He said the situation is now very different - Ireland has the fastest growing GDP in Europe while Irish per capita GDP is higher than euro-area average.
"Now we have a well defined set of rules, a single regulator, and have almost eliminated the ambiguity of who makes decisions," Mr Draghi said.