ECB ‘clearly stated’ objection to burning bondholders

The former head of the Department of Finance has said it was made clear to the Government the ECB would “not be happy” if senior bondholders were burnt.

John Moran told the banking inquiry the Fine Gael-Labour government wanted to share the burden of the banking crisis with senior bondholders, after taking power in 2011.

Asked about claims the European Central Bank threatened to withdraw funds from Ireland if it burnt some bondholders, Mr Moran said the bank expressed its opposition.

Mr Moran, former secretary general at the Department of Finance, said the advice was that “the prize didn’t make it worthwhile” to universally burn bondholders.

Negotiation on the issue with the ECB had gone down to the wire one night in March 2011 as Minister Noonan was set to announce the restructuring of the banks to the Dail.

Asked by Fianna Fail’s Michael McGrath if then ECB president Jean Claude Trichet had threatened to withdraw funds from Irish banks if bondholders were burnt, Mr Moran replied: “He wouldn’t have been happy with us doing burden sharing.”

There was up to €150 billion of ECB funding in Irish banks at the time, he said.

Mr Moran said he was not party to the phonecall with Mr Trichet. He insisted the Government had been “anxious” to burden share with bondholders.

“The only person stopping them, essentially, as far as I could see at that stage, was the person at the other end of that phonecall.”

Mr Moran, who resigned earlier this year, was critical of intrusion into his personal life by the media, which included photographs being taken of his property and that of his neighbours.

Elsewhere, the current head of the department, Derek Moran, told how officials gave ministers warnings on the economy in the years leading up to the crisis.

The secretary general said officials warned about the over reliance on the construction sector.

“The Department had been warning of the risks to the budget and the economy for nearly a decade before the eventual crisis hit in 2008.”

But Mr Moran agreed with previous claims that the majority of warnings about the economy were given around the budget and not beyond that.

During his closing remarks, he cautioned against any return to or appetite for property-related tax breaks or investor-led reliefs.

“All stuff done in the past, doesn’t seem to have been computed and “we have to be vigilant”.

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