E.C.B. Threatened to End Funding Unless Ireland Took Bailout, Letters Show
Newly released documents suggest that Ireland was pressured into a controversial 67.5 billion euro bailout that left taxpayers rescuing crippled banks, reigniting a fierce debate about the international aid that Dublin accepted after the financial crash.
An exchange of letters, released by the European Central Bank after one was published by The Irish Times, show how Ireland’s government was left with little alternative but to apply for the bailout, which amounted to $84.5 billion and led to sweeping cuts in public spending and years of austerity.
The documents, dating from 2010, also show the European Central Bank’s role in determining the scope of the aid program. One indicates that the central bank, based in Frankfurt, threatened to cut off emergency support for Ireland’s failing banks unless the country applied for an international rescue.
At the time, the eurozone authorities were determined to protect senior bondholders from losses in order to preserve confidence in the European banking system, a policy that was reversed in other cases as the debt crisis wore on.
Mr. Trichet wrote that the position of the central bank’s governing council was that it was “only if we receive in writing a commitment from the Irish government” to seek international assistance “that we can authorize further provisions of E.L.A. to Irish financial institutions.”
Ireland’s request should include a commitment to undertake “decisive actions in the areas of fiscal consolidation, structural reforms and financial sector restructuring” in agreement with international partners, the letter added.
An earlier letter from Mr. Trichet referred to the “extraordinarily large provision of liquidity by the Eurosystem to Irish banks in recent weeks.”
Brian M. Lucey, professor of finance at Trinity College, Dublin, said the letter showed that the European Central Bank was more involved in the details of the bailout than he expected and that “they were trying to make things up as they went along — there were no clear rules.”
The fact the bank was “throwing its weight around” did not help the image of the bailout, Professor Lucey said, adding that while most Irish citizens accept that Ireland made big mistakes, they resented the shape of the rescue.
“History will judge this as having been the wrong decision,” he said. “At some point, the burden should have been spread and it wasn’t.”
Last year, Ireland ended is reliance on international loans and left the bailout program, although repayments to international lenders will take many years to complete, with the final one due in 2042.
Source: NYT – E.C.B. Threatened to End Funding Unless Ireland Took Bailout, Letters Show
