The European Central Bank provided more financial assistance to Ireland at the height of its banking crisis in 2010 than any central bank has ever provided to any country, according to the bank’s former president.
Jean-Claude Trichet told Irish politicians on Thursday that the ECB had extended emergency liquidity assistance to the country’s banking sector equivalent to 100 per cent of its gross domestic product.
“That was one quarter of the ECB’s total lending at the time and was totally unprecedented,” he said. “We helped Ireland more than any country; more than any central bank did for any country.”
Mr Trichet was speaking during sometimes testy exchanges with members of a parliamentary committee conducting an official inquiry into the causes of the Irish banking collapse.
There is a lingering view in Dublin that the ECB effectively bounced Ireland into seeking its €67bn bailout from international creditors by threatening to cut off the emergency liquidity. But Mr Trichet insisted the reality was “to the contrary”.
The former ECB president had declined to meet formally with the committee, but he agreed to answer questions from its members after delivering a speech in Dublin on eurozone governance.
The event was held not in the committee room where the inquiry is taking place, but in the grander surroundings of the 17th century Royal Hospital, once a military facility and now the home of the Irish modern art museum.
Mr Trichet said Ireland had been facing an unprecedented crisis in 2010 and its banking sector was probably the eurozone’s most vulnerable to collapse.
He insisted that the issue of not bailing in senior creditors of the banks when they were being recapitalised was the consensus view among central bankers and policy makers at the time. He said the decisions the Irish government took in recapitalising the banks were “the least worst that could have been taken”.
We helped Ireland more than any country; more than any central bank did for any country
– Jean-Claude Trichet
Mr Trichet also told the committee that the Irish government’s decision to guarantee all the liabilities of Irish banks in September 2008, shortly after global financial markets had been sent into turmoil by the collapse of Lehman Brothers, was made without any intervention by and without the knowledge of the ECB or the eurogroup of eurozone finance ministers.
He said he discovered through the media that the guarantee had been issued, and the ECB did not agree with it.
“There was no discussion of the guarantee of any kind,” he said, describing it as “like a thunderbolt” for other eurozone member states, which were also not informed that it was to be issued. “We were not in favour of this guarantee. We are on record in writing on this.”
The guarantee is regarded as the fateful move in forcing Ireland ultimately to seek an international rescue when the banking system finally collapsed in 2010 after the scale of losses became apparent at Anglo Irish Bank, which was heavily exposed to the speculative property market.
The country emerged from the bailout at the end of 2013.