Refusal by ECB was ‘one-sided extortion’

The refusal of the European Central Bank (ECB) to allow the burning of bondholders in 2010 amounted to “a one-sided extortion” of the Irish Government, a so-called minority report by a leading member of the Banking Inquiry has found.

Refusal by ECB was ‘one-sided extortion’

The ECB abused its role to place “unduly stringent demands on Irish taxpayers” by refusing to allow the burning of bondholders, the report from Independent Senator Sean Barrett concluded.

Mr Barrett and his research team, have produced a report which has been seen by the Irish Examiner, and emerges 24 hours before the inquiry’s official report is released.

Senior bankers in Irish banks were allowed to remain in position despite evidence of “monumental mismanagement”, and should have had penalties enacted against them, the report found.

Mr Barrett, who is a Trinity Economics academic, also said any future bank guarantee must “be tied to the removal of senior bank leadership and boards of directors that unequivocally failed at their duties, to the detriment of the State”.

“Moral hazard is also a side effect of not removing bank leadership after clear evidence of mismanagement. Senior management across the Irish banks failed to ensure that their banks maintained solvency, yet they were rewarded with government assistance and full collaboration without any real penalty,” Mr Barrett concluded.

The report also found that the degree to which Irish taxpayers were liable for saving the euro banking system was “entirely inequitable”. Mr Barrett also found because records of key meetings relating to Ireland’s €64bn banking crash were inaccessible or never created, major gaps in understanding have been left.

He also concluded that a focused approach to the giving the 2008 €440bn bank guarantee was needed which did not include subordinated debt. Such a guarantee would have been less costly to the Irish taxpayer.

“Any future guarantee must be more targeted to minimise the eventual cost of the plan,” the Barrett report stated. The report, ‘A Way forward: The Future of Irish and European Union Financial Regulation’ also found the Government should have forced the bailed-out banks to write off their non- performing loans , which are “still hamstringing the recovery process”.

Mr Barrett’s report said the Irish people deserved to have a comprehensive understanding of where the €64bn went to, but the Banking Inquiry failed to deliver such an understanding.

“By limiting the terms of reference, the Banking Inquiry was unable to acquire crucial information regarding how these funds have been allocated,” the report stated.

Mr Barrett was also critical of the delay in holding the inquiry after the 2008 crash saying it led to a “substantial reduction in its effectiveness”. In his conclusions, Mr Barrett found the financial crisis brought “unprecedented harm” to the Irish economy, creating immense hardship and suffering.

Similar reports are expected from Socialist TD Joe Higgins and Sinn Féin’s Pearse Doherty, who both said they could not support the final official report.

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