A SENIOR figure in the European Central Bank (ECB) has disclosed that it repeatedly urged Taoiseach Brian Cowen and Minister for Finance Brian Lenihan to bring forward the 2011 Budget as market confidence drained from Ireland in the run-up to the EU-IMF bailout.
Lorenzo Bini Smaghi, a member of the ECB executive board, said the bank’s president, Jean-Claude Trichet, told Mr Cowen and Mr Lenihan several times that they should fight the evaporation of investor support by declaring ambitious new plans to control the budget deficit.
Mr Bini Smaghi said Mr Trichet’s efforts were in vain, as the Government kept to tradition by waiting to publish the Budget in early December. By then, Dublin had already sought external aid.
“We took all the opportunities to tell the Irish Government that they had to take bold actions very quickly,” he said.
“Not in public, in private conversations, Mr Trichet mentioned this several times on the margins of the European Council or the euro group . . . The response was that the Budget would be presented in time, in line with the Irish parliamentary procedure, early December. But the markets did not wait so long.”
Mr Bini Smaghi said mounting pressure last year called for emergency measures. “Markets waited and waited and since they saw no policy reactions they started to lose confidence in the course of the summer. There was a downgrade – in August – but there was no policy reaction, no announcement that a tough budget was in preparation and no announcement of the measures.
“The loss of confidence also affected the banking system and this created a spiral which led to the crisis and in the end the request for financial assistance.”
He said it was “totally wrong” to say the ECB forced the Government’s hand and insisted the EU-IMF austerity plan would not ruin the economy. “It’s important for the Irish people and for the Irish politicians to recognise that to some extent the crisis is the result of problems that Ireland built for itself. It’s counterproductive to look for scapegoats,” he said. Furthermore, any new government must fulfil the commitments set out in the rescue plan.
“Countries’ commitments cannot change with every change in government, so the Government has committed Ireland for the period of the programme. It would be dramatic for Ireland if just by changing government you renege on the promises that Ireland as a sovereign has made to the other [countries],” he said.