ECB chiefs set to snub our probe into bailout

The letters, which include a threat to cut off funds if Ireland did not apply for a bailout, drew fresh calls for the Frankfurt-based ECB to send representatives to the imminent banking inquiry.

Mr Trichet, who directly dealt with the issue, has already refused to come here to answer questions from TDs and Senators.

And the current president of the ECB Mario Draghi yesterday backed the stance of his predecessor.

“Never forget that the ECB is accountable to the European Parliament, not necessarily to the national parliaments,” he said.

ECB bosses also strongly rejected the accusation that they “bullied Ireland” into the bailout programme by threatening to cut emergency bank funding.

The bank insists that the scale of the Irish financial crisis itself made the bailout inevitable. The ECB also argues that it delivered unprecedented financial support to Ireland through the crisis.

Fianna Fail finance spokesman Michael McGrath said the letters showed the last government was “bullied” into a bailout with threats of a bank collapse. “We need to know what pressure the current Government was put under by the ECB (as well)… and we need to hear from the ECB in full at the inquiry,” Mr McGrath said.

Bank inquiry chairman Ciaran Lynch said he hoped the ECB will deliver all available information to the inquiry. But the Labour TD could not comment on whether ECB bosses should testify.

Speaking in Brussels, Finance Minister Michael Noonan said the letters would be very valuable for the inquiry.

The secret letters between the two main players were finally revealed yesterday, four years after the crisis.

The first letter, dated October 15, shows how Mr Trichet originally wanted the government to cut the deficit to 3pc by the end of this year – a measure that would have meant worse austerity.

In a letter dated November 4, 2010, Mr Lenihan appealed to Mr Trichet for help in keeping markets calm. He raised concerns about Ireland’s rising borrowing costs, and pointed out that spreads had widened on the basis of speculation of conditions that may be necessary for countries getting financial aid. “It is the case that many market commentators attribute these comments as being the primary driver of the increased spreads of peripheral countries, including Ireland, in recent days,” Mr Lenihan wrote.

Mr Lenihan also enclosed press commentary from the time, including from the Irish Independent. The minister urged Mr Trichet to use his influence to help calm markets.

In a later letter, dated November 19, 2010, Mr Trichet threatened to cut all emergency bank funding unless Ireland immediately sought a bailout.

Mr Lenihan formally accepted the bailout on November 19.

Despite the warning letter, ECB officials yesterday said that it was the domestic situation that forced the bailout.

“As the letters and all the documentation aim to show, it was not the letter that ‘pushed Ireland into a programme’, as is sometimes claimed, but it was the scale of the domestic crisis that made it necessary for Ireland to apply for an EU/IMF adjustment programme.

“The documentation also shows that in the run-up to the application for support and throughout the Irish programme, the ECB has continued to support the Irish banking system and the Irish economy in an unprecedented manner,” said the ECB.

The ECB said the decisions outlined by the then-Irish government, the scale of the domestic crisis and the aggravating external factors pushed the country into a bailout. It said the level of support provided by the euro system for Irish banks had been “extraordinary”.

The ECB also said that the idea in Ireland of burning bondholders has been at times “frequently been misunderstood and at times misrepresented”.’

Mr Noonan said ECB representatives “will be invited, I understand, from the chairman of the banking inquiry”.

But he added: “I don’t think they have any power to compel people to attend the banking inquiry. But certainly if Mr Trichet or a representative were to attend I think that would be welcomed.”

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