‘State not told that no bank can fail’

The head of the EU’s Economic and Financial Affairs has denied the group ever explicitly told Ireland that no bank should be allowed fail despite a long-standing belief this was the reason why Anglo Irish was bailed out.

Director general Marco Buti made the claim to the Oireachtas banking inquiry as a separate IMF official told the cross-party group that Ireland’s boom-to-bust fall was the most “extreme” he has ever seen.

Speaking during a three-hour meeting with TDs and senators yesterday, Mr Buti said the widely held view that the position came directly from EU policy set up to prevent contamination of a major crash into other countries was inaccurate.

Under questioning from Fianna Fáil senator Marc MacSharry, Mr Buti said there was never a written or “unwritten” rule in the pan-European body that no bank should fail.

He admitted EU officials did not uncover the clear dangers of a crash or shout their warnings loudly and clearly enough in the Celtic Tiger years because of inadequate bank-specific checks and contradictory views on the Irish ‘miracle’.

However, in accepting the group’s role in what had occurred, he said a focus of public anger was not an EU directive, namely, the decision to bail out Anglo Irish because no bank should fail.

“There was never a recommendation on the part of the commission on that subject. It was not addressed to the Irish policymakers, it was not addressed to any other countries or institutions,” Mr Buti said.

“You will not find, in our opinions, in our recommendations either on the stability programmes or national reforms, a recommendation of this sort,” he said.

The comments are likely to provoke further questions over why then Fianna Fáil-PDs-Greens government chose to include Anglo Irish in the September 2008 bank guarantee. Mr Buti also faced criticism over the EU’s apparent failure to fully warn the Government on problems in the economy which ultimately led to the crash.

The official said between 2001 and 2008 EU annual checks on the economy were an overview and did not include close examinations of individual banks.

While he emphasised the EU did raise concerns in 2001, Mr Buti said these were “not very well received in Ireland, it was not implemented”, and that “many in the economic profession... accused us of focusing more on decimals than acknowledging the strength of the Irish economy”.

At a separate hearing yesterday afternoon, ex-IMF deputy director and ex-Irish Fiscal Advisory Council member, Dr Donal Donovan, said it is “widely accepted” that the IMF’s “surveillance process” in the years before the crash “failed”.

He said while it had raised concerns it was still giving a “rosy picture” in its 2007 annual update on the country, a situation that contributed to the “most extreme” economic fall he has ever seen.

Dr Donovan said it is still his view the bank guarantee was the right decision and while Ireland should have been able to burn some bondholders in 2010 or 2011, a move he said US and ECB pressure prevented, this would ultimately have saved €6bn of the €64bn on the table.