Monday 20 November 2017

We did not stop Ireland from burning bondholders, says ECB chief Draghi

Mario Draghi
Mario Draghi
Donal O'Donovan

Donal O'Donovan

The European Central Bank (ECB) has said it did not block Ireland from burning bondholders in the wake of the financial crash - a decision that helped heap €64bn of bank debt on to the shoulders of taxpayers.

In a letter to Irish MEP Matt Carthy (Sinn Féin), the President of the ECB Mario Draghi said his bank's role in the area of so-called "burden sharing" with bondholders had been "frequently misunderstood and, at times, misrepresented".

Mr Draghi said senior bondholders who had invested in Irish banks were protected primarily as a result of the Irish bank guarantee, which was introduced by the then coalition in September 2008.

The ECB was not consulted about the guarantee, he said.

"The ECB was neither made aware of nor consulted beforehand on the implementation of the Credit Institutions Financial Support Scheme (the bank guarantee), and took a critical view of the two-year guarantee of bank liabilities," Mr Draghi said in a letter dated February 17.

The ECB had no power to order Ireland to protect bondholders, Mr Draghi (inset) said.

However, in the same letter he said the ECB was still of the view that it was the right decision not to burn senior bondholders after the bailout programme was put in place.

Given the state of Anglo Irish Bank, the Irish government could have taken the initiative to "bail in" some senior bondholders "well before" the national bailout in 2010, he said.

"However, this option was not pursued by the Irish authorities."

By the time of the bailout in November 2010 the potential savings from such a move were small, while the risks would have been significant, he said.

The ECB has been frequently blamed for exerting pressure on Ireland during the worst period of the financial crisis, including to avoid so-called burden sharing with senior bank investors, and ultimately for pressing the then government to accept an EU/IMF bailout.

However, Mr Draghi said the ECB never issued instructions to the Irish government.

"First, I must be absolutely clear that the ECB does not have any authority to issue instructions to any euro area government or its ministers, in the same way as euro area governments and EU institutions are not in a position to issue instruction to the ECB," the letter states.

"The decision on the modalities of the Irish credit institutions was taken by the Irish authorities, in accordance with the EU/IMF," he said.

The ECB claims it cannot participate directly in the Banking Inquiry here, but Mr Draghi said his bank was prepared to work with members of the Dáil on an informal basis.

Irish Independent

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