‘Irish taxpayers could have been spared €14bn’
Former attorney general Paul Gallagher is the first senior government official to break ranks with colleagues in the former Fianna Fáil- led administration which repeatedly stressed that it would be legally impossible to enforce losses on the speculative unsecured bondholders.
In evidence to the banking inquiry, he said that he had written to the late finance minister Brian Lenihan advising him of the possibility of legally accommodating burning the bondholders while protecting deposits.
Following discussions with legal experts and IMF officials, Mr Gallagher “confirmed repeatedly” the only obstacle to imposing losses on senior unsecured bondholders was obtaining troika approval, not any legal issue.
“I had meetings also with IMF representatives and specialist lawyers to consider that and we confirmed repeatedly that that could be done in legal terms, notwithstanding the legal difficulties, and it depended solely on the approval of the troika to doing that, and that as you know was prohibited and was a condition of the bailout,” Mr Gallagher said.
The Fianna Fáil-Green Party coalition was adamant burning bondholders would require imposing losses on depositors as both were on the same legal footing.
“We know the senior bondholders rank equally with depositors in having claims in Irish banks. We know that the long debate on the mere possibility of default has caused immense problems from the Irish banking system,” Mr Lenihan said in 2011. The current government has not strayed from the position, with Taoiseach Enda Kenny insisting Ireland would “pay [its] dues in full and on time”.
Mr Gallagher claims that the government of the day was determined to burn bondholders but were forbidden to do so by the troika, which also accepted the legal reality but refused to countenance “burden sharing”.
The ECB warned failure to pay unsecured senior bondholders would seriously compromise the credibility of the Irish financial sector.
University of Limerick senior economics lecturer, Stephen Kinsella, said it was unclear as to whether the comments stretched to international law, but added the revelation went against what has been previously said by senior officials.
“Certainly, the economics of the situation are very clear: these guys took a risk and it didn’t pay out, they shouldn’t have gotten their money off the taxpayer but I guess it’s yet another example of where politics and international relations trumps economics because there’s no doubt these guys didn’t deserve their money back,” he said.
A Fianna Fáil spokesperson said a lack of support from international partners prevented Mr Lenihan from imposing losses on senior unsecured bondholders once Ireland had entered the bailout in November 2010.
“Prior to the ending of the bank guarantee legislation did not exist which would have allowed for the burning of bondholders while at the same time protecting deposit holders in full.
“However the barrier to burning senior bondholders was not simply a lack of legislation, it was the absence of international support for such a course of action,” the spokesperson said.
