ECB gave Ireland an ultimatum, inquiry told

The IMF’s chief bailout official has accused the ECB of blocking an €8bn Irish plan to burn bondholders, putting its interests ahead of the country’s, and ultimately worsening the economic crash by forcing Ireland to “stand behind” the banks.

ECB gave Ireland an ultimatum, inquiry told

Former deputy director of the IMF, Ajai Chopra, made the claims as he repeatedly hit out at other members of the troika on the final day of the banking inquiry’s public hearings.

Speaking to the cross-party group in a voluntary capacity, Mr Chopra said the European Commission and ECB “worsened the crisis” through a series of measures which forced the country to shoulder an unfair amount of the debt burden facing the continent.

While noting that Ireland has come out of the crash stronger than he anticipated, he said the body overstepped its boundaries in influencing internal Irish fiscal policies.

He said that while he was in favour of examining a potential burning of senior bondholders which he said could have saved the State €8bn, the ECB ruled it out and put eurozone concerns over “contagion” above Irish interests “even when this resulted in higher Irish public debt”.

He said letters between then finance minister Brian Lenihan and former ECB president Jean-Claude Trichet in November 2010 clearly show Ireland was given an “ultimatum” that if it considered burning bondholders no bailout support would be available.

He said “ultimatums” are “not the right way to conduct business” and it unfairly affected what was happening in Ireland, adding a similar situation is now occurring in Greece.

Asked about its impact, he said Ireland was ultimately given “no choice... but to enter a fiscal programme” and that while he favoured a more gradual level of cutbacks they were instead front-loaded, causing deeper cuts to public services.

He said in his view the decision to make Ireland and other nations stand behind banks in 2008 “worsened the crisis” by turning it into a sovereign debt problem instead of a banking sector issue. He said the ECB went “beyond its mandate” in “pushing fiscal reforms” instead of changing structures and that there was an “excessive” focus on reaching inflation targets.

Last weekend, the ECB formally refused to attend the banking inquiry as information it provided would be used as formal evidence — a reason some inquiry members believe is hiding the fact the body is fearful an attendance could see it forced to face a similar Greek examination.

However, its president Mario Draghi has agreed to undergo questioning about the situation at the European Parliament’s economic and monetary affairs committee, a meeting Fine Gael MEP Brian Hayes said yesterday is an “absolute minimum” requirement.

A bank inquiry spokesman confirmed last night this meeting cannot be used as evidence f or the Irish investigation, but can be included as “observable” information in the final report, which will be based on evidence from 148 witnesses and is expected to be published in January.

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