Finance Minister Michael Noonan was minutes away from announcing a crucial plan to burn bondholders to the Dáil in March 2011 before then ECB president Jean Claude Trichet phoned him to insist he drop the measure.
The intervention, which contradicts Mr Trichet’s claims, was confirmed for the first time at the bank inquiry and as a senior IMF official said the ECB “worsened” the Irish crisis by putting its own interests first.
Speaking to the cross-party body during its final day of public evidence, Mr Noonan said cabinet agreed on March 28, 2011, to burn senior bondholders, potentially saving up to €8bn.
The decision was set to be announced to the Dáil at 4.30pm on March 31.
However, moments before Mr Noonan reached Leinster House that afternoon he received a phonecall from then ECB president Mr Trichet insisting the plan be scrapped.
“He [Mr Trichet] said if you do that a bomb will go off, and it won’t be here [ECB], it will be in Dublin. I can assure this committee that he said it. He did not qualify it,” Mr Noonan told the inquiry.
The finance minister said he told Mr Trichet the decision had already been made, but that “he didn’t agree, he didn’t agree” and asked if “you are aware the markets will consider this a default”, meaning billions of euro in emergency funding would immediately stop.
Mr Noonan said he phoned Taoiseach Enda Kenny about the standoff before receiving a second call from the then-ECB president who sounded “irate”.
At that point, Mr Noonan phoned Mr Kenny a second time and agreed the “risk” in announcing the plan was “too great” before performing a last-minute edit of his Dáil speech to remove any reference to bondholders.
“You’ll have remembered I was rather breathless when I got across [to the Dáil], you had to run,” Mr Noonan told Socialist TD Joe Higgins.
However, despite admitting frustration over the move, when asked if what happened is “not a really serious subversion of democratic rights”, Mr Noonan said Mr Trichet was simply “pointing out facts as far as he was concerned”.
Asked later by Sinn Féin finance spokesperson Pearse Doherty why Mr Noonan told reporters during a trip to Washington DC six weeks later that the bondholder plan was still possible and if he misled the public, the finance minister said he “didn’t agree” with Mr Trichet and noted the promissory notes deal was the ultimate result.
The phonecalls to prevent the Government from implementing one of its key pre-election promises, and the resulting U-turn, has long been rumoured.
However, yesterday’s inquiry evidence is the first time Mr Noonan has formally confirmed the exact details involved.
In April, Mr Trichet denied any such conversation took place and told the inquiry it “would have been totally not in line with the relationship I had”.
He also said he did not “blackmail” Ireland into the November 2010 bailout, claiming he “simply gave advice” funding would otherwise immediately dry up, and said he had “no memory” of telling then finance minister Brian Lenihan no bank should fail before the September 2008 guarantee.
Meanwhile, former IMF deputy director Ajai Chopra told a separate inquiry meeting yesterday that the ECB blocked an €8bn Irish plan to burn bondholders, put its interests first and ultimately “worsened the crisis” by forcing Ireland to “stand behind” our banks — “even when this resulted in higher Irish public debt”.
He said “ultimatums” are “not the right way to conduct business” and that they unfairly affected what was happening in Ireland and is occurring in Greece.
Mr Noonan also told the inquiry the final cost of the bailout will be €35bn, but this money will be recovered over time, and the State will not sell its AIB stake until after the general election.
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