EU leaks intended to bounce Ireland into bailout, says Cowen

EU institutions sought to bounce Ireland into a bailout programme in late 2010 by providing selective leaks to international media, former taoiseach Brian Cowen told the Oireachtas banking inquiry on Wednesday.

“It became very clear to me, very quickly, that people were trying to bounce us into a programme in principle,” he said. “I have no doubt that there were elements within the EU institutions who were providing inspired leaks to the media with that agenda in mind.”

However, Mr Cowen made it clear to the committee that he did not believe that Central Bank of Ireland governor Patrick Honohan, who was a member of the governing council of the European Central Bank (ECB), was one of those briefing against Ireland at the time.

On November 18th, Mr Honohan went on to RTÉ's Morning Ireland radio programme to tell the public that Ireland would probably apply for a bailout. Mr Honohan's intervention came at a time when the Government was insisting that Ireland had not applied for a bailout from the EU and the International Monetary Fund (IMF), as had been reported by international media.

‘Unfortunate’ interview

Mr Cowen said Mr Honohan’s RTÉ interview “put us on the back foot”.

“It was very unfortunate that that’s the way it came out, that’s the way it was presented. That was a job for us to do, and it put us in a poor light,” he said.

He said the government was trying to create some leverage in its early negotiations with the troika in advance of formally applying for a bailout.

He was also determined that the four-year national recovery plan that had been drawn up by the government to reduce Ireland’s deficit to 3 per cent would form the basis for the bailout adjustment.

Mr Cowen detailed how Ireland was placed under pressure by the ECB in November 2010 to enter a bailout programme.

On November 12th, the governing council of the ECB decided that it could not sustain its large exposure to Irish banks.

Some days later, EU finance ministers encouraged the then finance minister Brian Lenihan to seek access to a bailout programme. Mr Lenihan said he had no mandate from the government to do this.

On November 19th, the then ECB president Jean-Claude Trichet sent a letter to Mr Lenihan threatening the withdrawal of ECB funds in the absence of a formal bailout request.

“This was not well received by us,” Mr Cowen said.

However, Mr Cowen accepted that access to the EU-IMF bailout gave Ireland “access to funds at a cost cheaper than was available on the markets at that time and into the future”. On November 11th, Ireland’s bond yield had risen to 8.6 per cent.

“It would provide, in that respect, funding certainty over a three-year period that therefore gave a better prospect to implement the plan that we were announcing,” Mr Cowen said.

Burning bondholders once the original two-year bank guarantee was due to expire in September 2010 was not favoured by the National Treasury Management Agency (NTMA) as Ireland was still raising funds from capital markets, Mr Cowen said.

“Once we were out there borrowing funds on bond markets from a limited pool of investors, the question of being allowed to burn senior bondholders was not something that the NTMA would be in favour of in terms of getting funds at the right price,” he said.

Guarantee of bonds

Eoghan Murphy, of

Fine Gael

, noted that the guarantee of some €19 billion of unsecured senior bonds was due to expire, with €2.4 billion repaid between September 2010 and the time of the bailout negotiations two months later.

Mr Cowen said the ECB was also not in “favour” of burning bondholders in September 2010, though it hadn’t made its position explicit by that stage.

When Ireland explored the possibility of burden-sharing by unguaranteed senior bondholders during subsequent discussions, the IMF were “sympathetic”, but when it was referred to a higher level “there was total opposition to it”.

US treasury secretary Timothy Geithner was opposed because he claimed it would "totally undermine market access for those European countries, including ourselves, that were in trouble".

The ECB also opposed burden-sharing, Mr Cowen added. “It was made clear to us that any attempt to burden-share with senior bondholders would mean no programme for Ireland.”

In answer to a question about whether Mr Lenihan had kept him fully informed about his contacts with EU institutions, Mr Cowen described the late minister as “very capable”.

“I was very happy to appoint him as minister for finance, and glad I did,” he added. “He would keep us [the cabinet] informed generally.”