Secret of ECB letter may be in its tone

Almost four years after Ireland bowed to the pressure of rising bond yields and crumbling investor confidence and succumbed to an EU-IMF rescue, it appears that a key piece of information regarding the Irish bailout might just become clearer.

This week, Fine Gael's Seán Kelly said the European Central Bank confirmed to him that it intends to release a letter from former ECB president Jean-Claude Trichet to the late minister for finance Brian Lenihan. The letter of November 19th is rumoured to state that the central bank would cut off emergency funding to Irish banks if Ireland did not accept a rescue package.

In March, European Ombudsman Emily O'Reilly, following a meeting with current ECB president Mario Draghi, expressed dissatisfaction that the bank had not released the letter. It followed requests for the publication of the correspondence from Irish journalist Gavin Sheridan. At the time, the ECB said that it would review the situation after the bank stress tests were completed. With the stress tests published last Sunday, the ECB appears to have stuck to its word – its governing council, which includes Irish Central Bank governor Patrick Honohan, will discuss the matter at this Thursday's monthly interest- rate setting meeting in Frankfurt.

Whether the notoriously secretive bank will disclose the details of the letter is another matter. Thousands of Irish citizens may well remember tuning into the ECB’s monthly press conference in February 2013, hours after the Government had announced the promissory note deal, only to hear Mario Draghi say that he had “taken note” of the announcement.

On the other hand, the ECB may believe it has very little to lose in disclosing the details of the letter four years after the event. After all, the Government also has a copy of the letter, but has refused to disclose it.

If the letter of November 19th is released, will it have been worth the wait? The main information of interest will be the tone and wording of Trichet’s letter.

Even if the letter is revealed to have shown significant ECB pressure on Ireland to secure a bailout, by November 19th Ireland had already decided to seek a rescue package as Patrick Honohan informed the nation on RTÉ on November 18th.

The main advantage of securing proof that Ireland was pressurised by Frankfurt would be a strengthening of Ireland’s case for further debt relief on its bank debt.

While the Government appears to be moving away from its pledge to secure retroactive help from the ESM fund for AIB and Bank of Ireland, arguing that direct bank recapitalisation is less beneficial as the two pillar banks become more valuable, the Trichet letter could be the proof needed to show that Ireland took a hit for the euro zone team and hence deserves special treatment.

The ECB might argue that through the promissory note deal, the extension of loan maturities and facilitation of the early repayment of its IMF loans, Ireland has already been given plenty of special treatment to date.