ECB did not share its Irish analysis for EU bailout probe

Tuesday 26 January 2016 23.13
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Ireland's current member of the European Court of Auditors, Kevin Cardiff
Ireland's current member of the European Court of Auditors, Kevin Cardiff
The ECB did not share its 'internal deliberations' on burning Irish bank bondholders, the report found
The ECB did not share its 'internal deliberations' on burning Irish bank bondholders, the report found

An investigation into the Irish bailout by the EU's financial watchdog has found that the ECB "should" have shared its internal analysis with the European Commission and IMF on the question of burning senior bank bondholders.

The report by the Luxembourg-based European Court of Auditors recommends that in future there should be more "formal" information-sharing between the ECB and other parties to financial rescues.

The report investigates how the bailouts for Ireland and Portugal were handled by the European Commission, as well as other support packages for Hungary, Latvia and Romania in 2008.

The Court of Auditors insists the probe was not tasked with examining any political decisions or asking whether the bailouts were appropriate or not.

Although the ECB was not formally part of the audit, RTÉ News understands the audit team did approach the ECB for detailed information on aspects of the bailouts for Ireland and Portugal, but was turned down.

The report notes that the ECB did not share its "internal deliberations on burden-sharing by senior debt holders in the restructuring of the Irish banks".

It concluded that other members of the Troika - the European Commission and the IMF - agreed there be no burning of senior bondholders in the Irish banking sector.

The report did, however, note the IMF later suggested there were alternatives to protecting senior bondholders, but those were not pursued.

But the lead auditor on the report, the Spanish member Baudilio Tome said the audit was not tasked with assessing whether or not senior bondholders should have been forced into burden sharing.

In a written response to the ECB question, the European Commission said the ECB had declined to provide "internal information" to the Commission due to its independence.

The Commission was not in a position to "demand" such information.

Both the Commission and the Court of Auditors said the ECB's financial support to Ireland at the time was equal to the country's GDP.

"Given that the amount of ECB financing was close to annual Irish GDP, continued ECB financing was essential to the success of the programme," the commission wrote in a submission to today's report.

"Developments since then have justified the choice not to bail in senior bondholders.

'Very strange' that reasoning was not shared

Economist Colm McCarthy said it was "very strange" that ECB did not share the reasoning with the EC behind its insistence that the Irish Government pay off unsecured and unguaranteed bondholders in banks that had gone bust. 

He said he was "very surprised" by this revelation.

Mr McCarthy also said "the Troika as the Troika is finished". 

He said "I doubt if the IMF will ever participate again in an arrangement of that sort.

“It exposed its reputation, it exposed its balance sheet as a kind of a junior partner with two European partners to outvote them. 

“The EU Commission seems to have gone alone with the ECB on lots of these things, lots of mistakes were made. 

“I don't think the IMF will ever again participate in a three-handed reel in Europe," he added.

European Commission 'ill-prepared' for 2008 crisis

Anglo Irish Bank branch in Belfast

Overall, the report by the auditors said the European Commission was ill-prepared for the crisis which struck after 2008.

It concluded there were "weaknesses in processes" in terms of decisions taken and documents retained, although the report accepts that the EU authorities were in crisis mode.

The report noted Ireland and Portugal were given more preferential financial terms than Hungary, Romania and Latvia in terms of longer maturities and reduced interest rates.

It found Ireland saved €2.2bn over the period of the loan as a result.

This was the first arms-length investigation of the Irish bailout.

The scope of the audit was restricted to one third of the bailout - the €22.5bn that came from EU funds as opposed to the other two thirds which came from the IMF and the new loan facility under-written by eurozone capitals.

Ireland's current member of the Court of Auditors, Kevin Cardiff, absented himself from the audit since he was a key figure in the department of finance at the time the bailout was agreed.

The Court of Auditors also concluded the Anglo Irish Bank promissory notes deal reduced the Irish state's financing needs by €30bn over the period 2013-2023.

Despite the shortcomings, the Court of Auditors concluded that in all cases the bailout programmes met their targets.

A separate report on Greece will be published next month.