Jean-Claude Trichet raised his voice more than once at a long public meeting at which he was questioned by members of the Oireachtas banking inquiry in Dublin. In a quiet room afterwards at the Royal Hospital Kilmainham, he reflected yet again on the European Central Bank’s contentious role in Ireland’s economic crash.
In what remains a complex affair, Trichet’s message is a simple one at its root. For all the criticism levelled against him and the institution he led for years, he insists in forceful terms that Ireland received a greater level of support from the ECB than any other country received from any other central bank.
Trichet, who stresses his confident relationship with the late Brian Lenihan, had already expressed the ECB’s surprise at the “thunderbolt” banking guarantee of 2008. To claims that the actions undertaken in Europe immorally thrust private banking debts on the shoulders of people who had no part in the build-up of such debts, he said the international authorities were faced with the threat of a depression on par with the 1930s if they did not intervene to prop up the financial system.
While this did not find favour with some bank inquiry members, Trichet told Socialist TD Joe Higgins at one point that something was missing in his critique.
So is the ECB's role in the Irish debacle misunderstood? "No, I have to say of course that it seems to be that the fact that ECB has been extraordinarily supportive of Ireland – I can prove that with facts and figures not only in the euro area as a whole – with at a certain moment 25 per cent of the refinancing of the euro area concentrated on Ireland," he told The Irish Times.
“But also because in terms of percentage of GDP we went at levels which are extraordinarily high and have no equivalent in the euro area and in the world, going up to 85 per cent of the GDP of support at the moment of the bailout and all taken into account that at the peak we went up to 100 per cent.”
As for question-and-answer session he had just completed with inquiry members, Trichet said “the sentiment expressed by some discussions I had with a number of questioners was not in line with the confident relationship I had with the successive ministers for finance”.
“I have to say, with great emotion, particularly with Brian, because he was under the heat of the crisis on one hand and had this dramatic personal disease on the other hand.”
Routinely attacked
Such argument mirrors an hour-long speech he gave yesterday at an event organised by the Institute of International and European Affairs.
Yet the criticism continues. The ECB – and Trichet in particular – are routinely attacked over the circumstances of Ireland’s entry into the bailout and its refusal thereafter to give its blessing to the imposition of losses on senior bondholders.
Does Trichet feel the ECB gets a bad deal in Irish debate? “I see that a number of persons might consider appropriate to take the ECB as a possible scapegoat and I think that it’s not the case at all,” he said.
“We can prove that in the run-up to the crisis that either we had no responsibility at all or we made the early warning particularly as regards the competitiveness that were of the essence. As regards dealing with the crisis itself, we tried to help by all means. And of course it’s not our fault if Ireland was terribly vulnerable taking into account the huge size of the banking sector.”
Earlier, Trichet had advanced the argument that what happened in Ireland was no accident. But where should the finger of blame point?
No accident
“What happened in Ireland was no accident taking into account of course the explosion of the markets in New York. It is not surprising at all that after the trigger, which was the Lehman Bros collapse, Ireland was one of countries which was the most vulnerable because again the excessive proportion of its banks’ balance sheet dimension/volume in comparison with GDP,” he said.
“Again, the blame, if blame there is, has to be put on the management of the banking sector and let’s not forget that you have the private responsibilities, the public responsibilities of the surveillance of the banking sector, then that you have of course the absence of sufficient attention given to the fact that when you have a single currency the monetary policy is necessarily the same for all the countries.
“By definition, otherwise you will not be in a single currency and that puts additional responsibility on the national policies. It’s clear for fiscal policy, the structural policy, the competitive policy but also for the financial surveillance.
“To put the blame on Ireland alone would not be appropriate because benign neglect was absolutely generalised. All countries were behaving improperly. Even the surveillance exerted at the level of the euro area as a whole was poor, very poor, very bad. I hope that we learned the lesson – the hard way – at the level of Ireland, at the level of individual countries, not only the euro area but everywhere as well.”
As for senior bondholders, Trichet’s essential point is that Ireland would not now have access to private debt markets if losses had been imposed.
“That’s my sentiment, and that is obviously the generalised sentiment both in 2010 and 2011. Now we are in a different situation. I hope very much that in the future, the system being very much more solid, that the risk of global depression being diminished and the rules of the game being clarified, we are in a different universe now.”
At at the meeting yesterday, Trichet appeared taken aback when it was put to him that an essay in a book on Lenihan said he had indicated to the minister he would allow the burning of senior bonds but changed his mind to protect French and German banks.
So what does he say now about that? “I did not say that to him. I cannot even imagine Brian saying that to his interlocutors taking into account the overall consensus on such matters at the time.”
