The alternative would have cost German and French banks multi-billions of euro, especially the Munich-based Hypo Real Estate, a senior source told the authors of a book on the politics behind the eurozone crisis.
Chair of the European Parliament’s economics committee Sharon Bowles, who has been highly critical of the decision, said German chancellor Angela Merkel had been badly advised. Germany and France thought they could tame the markets, she said, but instead Ms Merkel and French president Nicolas Sarkozy unleashed the speculators in the crisis that threatened the euro.
“But I don’t think it is a game she won,” said Ms Bowles in an interview with the Irish Examiner. In her five years leading the most powerful committee in the Parliament, Ms Bowles mediated more than 60 pieces of legislation, from the EU’s role in supervising national budgets to revolutionising the banking sector.
The claim that Berlin and Paris initiated the move against Ireland, rather than the ECB, is made in a newly published book, Europe’s Puppet Master. It has caused some upset in the capitals and in Brussels as it is based on confidential reports made by diplomats who attended the EU leaders’ summits during the crisis and is supported by insights from insiders.
Their account calls into question the independence of the ECB.
Written in German by two Brussels-based journalists, German Cerstin Gammelin and Austrian Raimond Loew, it noted that the opposite happened when it came to the Cyprus crisis. At first, they decided that even the depositors with less than €100,000 were to lose their money together with bondholders, “because hardly any French or German money was concerned”. Guaranteed deposits were untouched in the final decision.
Ms Bowles, voted the most influential woman in Europe, castigated the ECB, and its president ,Jean Claude Trichet, at the time for refusing to allow the bondholders in Irish banks to be burned.
“Those with large banking sectors did not want anything rocked,” said Ms Bowles. “Governments feared they would be forced to prop up their banks with guarantees, which happened anyway.”
That “the Irish citizens have bailed out the German banking system is basically untenable and long term will have to be made fairer”, she said. The Government will have to be given flexibility under the Two Pack rules, she said, which would mean at least getting longer to reduce the country’s debt of more than 110%.