European Central Bank (ECB) president Mario Draghi has said the ECB will not formally participate in the Oireachtas Banking Inquiry, as he defended the ECB's decision to threaten to withdraw emergency funding from the Irish banking system in late 2010.
In his most detailed comments on the Irish bailout since the publication of the ‘Trichet’ letters ten days ago, the ECB president said at the time when the controversial letter was sent, the European Central Bank was providing liquidity to the Irish banking system equivalent to 85 per cent of Irish GDP.
“For several years prior to the commencement of the EU IM adjustment programme, as well as in the subsequent period, the level of liquidity provided by the euro system to the Irish banking system had been extraordinary,” Mr Draghi told MEPs at the European Parliament in Brussels.
“When you support a country with 85 per cent of the country’s GDP and one quarter of total euro system liquidity, you want to be sure that there is no systemic threat for the stability of the entire euro system.
“Don’t you think the ECB should actually worry about that? Don’t you think the ECB should ask to have in place the policies that will guarantee that the situation will then later be stabilised?
“Don’t you think the ECB has a duty towards all the other countries that are providing that liquidity? I think that’s what the ECB has done.”
He said the ECB's action were not "some sort of irrational, authoritarian act." "It was part of an overall policy dialogue between the ECB and the Irish authorities," he said, noting that former Minister for Finance Brian Lenihan had told Mr Draghi's predecessor, Jean-Claude Trichet, in a letter that Ireland fully understood the concerns of the ECB.
Mr Draghi was responding to questions from MEPs, including Irish MEPs Matt Carthy and Brian Hayes, during a hearing at the European Parliament in Brussels earlier today.
Asked by Fine Gael MEP Brian Hayes if he would appear before the Oireachtas banking inquiry, Mr Draghi said the ECB was not accountable to national parliaments.
“The ECB as a European institution is accountable to you, the European Parliament, so as such we will not participate formally in the national parliament’s enquiry.” However, he said that the bank may participate informally.
“We haven’t discussed yet what sort of shape could take this informal participation. We will think and reflect on this,” Mr Draghi said.
ECB sources said yesterday the bank has not to date received correspondence from the Oireachtas banking inquiry committee requesting ECB participation in the inquiry.
In his response to Mr Carthy, Mr Draghi said it was “very important” to recall the lead-up to Ireland requesting the EU-IMF programme.
“Indeed, the recent release of the whole correspondence [...]between the former president of the ECB and the former Minister for Finance captures these developments succinctly but clearly, “ Mr Draghi said.
“In essence it wasn’t the letter per se [that caused Ireland to seek a bailout] but first, the government guarantee of bank liabilities, second the sheer scale of the domestic crisis, third, the presence of aggravating external factors, and fourth, the loss of market confidence which made it inevitable Ireland would apply for an EU- IMF adjustment programme.”
He added that, for several years, the level of liquidity provided by the ECB to Ireland had been “extraordinary.” “There are limits to the support the euro system can provide to banks within the member states,” Mr Draghi said.
