{"id":624,"date":"2012-08-17T10:38:45","date_gmt":"2012-08-17T10:38:45","guid":{"rendered":"https:\/\/karlwhelan.com\/staging\/?p=624"},"modified":"2015-10-22T11:29:28","modified_gmt":"2015-10-22T11:29:28","slug":"the-ecbs-secret-letter-to-ireland-some-questions","status":"publish","type":"post","link":"https:\/\/www.karlwhelan.com\/the-ecbs-secret-letter-to-ireland-some-questions\/","title":{"rendered":"The ECB’s Secret Letter to Ireland: Some Questions"},"content":{"rendered":"

By announcing it is only willing to purchase Spanish and Italian government bonds if these governments apply for funding from the EFSF bailout fund, the ECB is now exerting pressure on these countries to sign full bailout agreements.\u00a0 Officially,Mario Dragih’s\u00a0position on how the ECB engages with governments (as explained at his\u00a0June press conference<\/a>) is<\/p>\n

I do not view it as the ECB\u2019s task to push governments into doing something. It is really their own decision as to whether they want to access the EFSF or not.<\/p><\/blockquote>\n

In reality, the record of the ECB\u2019s role in Ireland\u2019s bailout application (admittedly at the time under the leadership of Draghi\u2019s predecessor) suggests it is an organization that is not at all averse to pushing governments into bailout funds.\u00a0\u00a0 As the facts below illustrate, this record also doesn\u2019t provide encouragement that the ECB will act in an open and transparent manner when doing so.<\/p>\n

In the months leading up to Ireland\u2019s bailout agreement, the ECB had become increasingly concerned about the amount of money it was loaning to Irish banks. \u00a0In early November, it appears the ECB decided it needed to intervene.<\/p>\n

On Friday November 12, 2010, Reuters\u00a0reported<\/a>\u00a0that Ireland was in talks with the EU to receive emergency funding.\u00a0\u00a0<\/sup>\u00a0The Irish government denied that any official talks were taking place.\u00a0 However, Brian Lenihan, Ireland\u2019s Minister for Finance at the time, subsequently told a BBC\u00a0documentary<\/a>\u00a0that, on this same day he received a letter from Jean-Claude Trichet\u00a0advising him that Ireland should enter an EU-IMF program. Lenihan was adamant that \u201cthe major force of pressure for a bailout came from the ECB\u201d.<\/p>\n

The Irish Times has\u00a0reported<\/a>\u00a0that<\/p>\n

Dublin officials believed the letter to be forthright, with an implicit threat that support for Ireland\u2019s banks was at risk.<\/p><\/blockquote>\n

Alan Ahearne, Lenihan\u2019s economic adviser at the time, confirmed these reports to the\u00a0Irish Independent<\/a>:<\/p>\n

“Yeah, the letter came in on the Friday from Trichet. The ECB were getting very hostile about the amount of money that it was having to lend to Ireland’s banks. The ECB demanded something be done about it and it mentioned Ireland going into the bailout. They were keen to get Ireland into the programme.”<\/p>\n

He added: “Lenihan rang Trichet that day, and they agreed officials would meet the following day in Brussels. When they met, the ECB put huge pressure on Ireland to go into the programme.”<\/p>\n

Ahearne said Lenihan was now at the centre of international chaos and Ireland’s future hung in the balance.<\/p>\n

“The following Tuesday, Lenihan went to the eurozone meeting \u2026\u201d<\/p><\/blockquote>\n

The Independent story does not state the date of arrival of Trichet\u2019s letter but the reference to a Eurozone meeting on the following Tuesday confirms November 12 as the date.<\/p>\n

\n

\"FRANKFURT<\/a><\/p>\n<\/div>\n

Within weeks of the receipt of this letter, Ireland had entered an EU-IMF financial assistance programme. Given the key role the ECB letter of November 12 appears to have played in such an important event in Europe\u2019s economic history, one might hope that this letter would now be in the public domain.\u00a0 However, the letter has not been released.<\/p>\n

Last December, an Irish journalist, Gavin Sheridan\u00a0requested<\/a>\u00a0that the ECB provide him with \u201cany and all communications from the ECB addressed to the Irish finance minister (or his direct office) in the month of November 2010<\/em>\u201d.<\/p>\n

The ECB\u00a0responded<\/a>\u00a0by supplying one letter dated November 18 (a technical communication relating to payments systems) but refused to supply another letter that dated November 19 (one week after the Reuters story and one day after Central Bank of Ireland\u00a0Governor Patrick Honohan\u00a0conceded<\/a>\u00a0that a bailout deal was likely).<\/p>\n

The ECB\u2019s justifications for not releasing the letter included the following paragraph:<\/p>\n

The second letter, dated 19 November 2010, is a strictly confidential communication between the ECB President and the Irish Minister of Finance and concerns measures addressing the extraordinarily severe and difficult situation of the Irish financial sector and their repercussions on the integrity of the euro area monetary policy and the stability of the Irish financial sector.<\/p><\/blockquote>\n

The content of the letter was alluded to as follows:<\/p>\n

The ECB must be in a position to convey pertinent and candid messages to European and national authorities in the manner judged to be the most effective to serve the public interest as regards the fulfilment of its mandate. If required and in the best interest of the public also effective informal and confidential communication must be possible and should not be undermined by the prospect of publicity. \u00a0In this case, the confidential communication was aimed at discussing measures conducive to protecting the effectiveness and integrity of the ECB\u2019s monetary policy and fostering an environment that ultimately contribute to restoring confidence among investors in the overall solvency and sustainability of the Irish financial sector and markets, which, in turn, is of overriding importance for the smooth conduct of monetary policy.<\/p><\/blockquote>\n

These communications raise a number of questions:<\/p>\n

    \n
  1. Did the ECB communicate with Brian Lenihan on November 12, 2010? If so, why was this letter not referred to in response to Mr. Sheridan\u2019s request?<\/li>\n
  2. Did the ECB threaten to withdraw funding from Irish banks unless Ireland entered an EU-IMF program, either in a letter dated November 12 or in meetings the following weekend?<\/li>\n
  3. What are the contents of the November 19 letter and why is this letter considered so sensitive given that it was clear to all after Governor Honohan\u2019s remarks on November 18 that a bailout deal was being concluded?<\/li>\n<\/ol>\n

    I believe the Irish and wider European public deserve a better explanation of the events of November 2010 from the ECB. The public release of all communications from Mr. Trichet to Minister Lenihan should be part of this explanation.<\/p>\n","protected":false},"excerpt":{"rendered":"

    By announcing it is only willing to purchase Spanish and Italian government bonds if these governments apply for funding from […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[8],"tags":[45],"class_list":["post-624","post","type-post","status-publish","format-standard","hentry","category-central-banks","tag-ecb"],"_links":{"self":[{"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/posts\/624","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/comments?post=624"}],"version-history":[{"count":4,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/posts\/624\/revisions"}],"predecessor-version":[{"id":1592,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/posts\/624\/revisions\/1592"}],"wp:attachment":[{"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/media?parent=624"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/categories?post=624"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/tags?post=624"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}