Three key truths about the bailout which we are only learning now

Opinion: Minister crumbled under the threat of financial terrorism from Trichet

Jean-Claude Trichet: threatened that the bomb would go off. Photograph: Reuters

Jean-Claude Trichet: threatened that the bomb would go off. Photograph: Reuters


Now they tell us. Isn’t it funny how, now that the troika deal has run its course, we can be told certain truths that had to be kept from us while the boys were still in town? In the last week, a demob-happy officialdom has let slip three rather important things. Between them, they cast a sickly light on the upbeat narrative of the last three years.

The first thing we’ve learned is that, as many of us argued all along, the blanket bank guarantee of 2008 was a catastrophic error. It was not an inevitability or a tough and courageous decision. It was just a mistake. Who says? Well, Olli Rehn, EU economics commissioner and one of the chief architects of Irish strategy since the crash, says so – now: “In retrospect I think it is quite easy to spot some mistakes like the blanket guarantee for banks.”

Thanks a million, Olli – so that means that the whole strategy that flowed from the guarantee is also a mistake and must be fundamentally re-evaluated?

No – “that is now water under the bridge and now we have redirected the river and we are on [sic] a better place for the moment”. But of course, the river has not been redirected – everything continues to flow from the mistake that is now, apparently, so easy to spot. Ireland cannot be allowed to correct a mistake that will harm its people for decades.

The second thing we’ve learned is that Michael Noonan told the public an outlandish fairytale on June 15th, 2011. Speaking from Washington, he informed us that he had a plan to impose losses on senior bondholders in Anglo Irish Bank. He said that he had told the IMF: “Look, it’s no longer a bank. Anglo is now merged with Irish Nationwide. It’s a warehouse for impaired assets. Its deposit base has been moved out into the pillar banks . . . we don’t think the Irish taxpayer should have to redeem what has become speculative investment”.

Oh, how we cheered. The Irish Times began its report: “Minister for Finance Michael Noonan says the Government has a plan to impose ‘substantial’ losses on senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society in a significant policy reversal.” Even the excellent Namawinelake blog, scourge of the bank bailout, headlined: “Well Hallelujah and about time – Noonan signals burning of senior bondholders at Anglo and INBS.”

Noonan spoofing
But Michael Noonan was spoofing. The “significant policy reversal” was just a pantomime for the masses in the cheap seats. How do we know? Because, last week, in the heady atmosphere of the troika’s exit, Noonan admitted to Miriam O’Callaghan on Prime Time that, two months earlier, he had already caved in to instructions from Jean-Claude Trichet of the European Central Bank to abandon plans to burn Anglo and INBS bondholders.

In his fine book The Price of Power, Pat Leahy describes what happened on March 28th, 2011, a few weeks after the Government took office. Michael Noonan did indeed propose a detailed plan to burn some of the remaining bondholders in Anglo. The Cabinet took a decision, in the words of one Minister, “not to repay €6 billion in Anglo senior bonds”. Three days later, however, Trichet threatened that he would pull the plug on Ireland if this happened: “If you do it, the bomb will go off.” Noonan, Leahy reports, crumbled under this threat of financial terrorism.

Emergency funding
Last week, Noonan effectively confirmed this. O’Callaghan asked: “In April 2011, did Jean-Claude Trichet threaten you personally to remove the emergency funding from our Irish banks , did he threaten to do that if you burned some bondholders?” Noonan replied: “Jean Paul [sic] Trichet is a very subtle, refined cultivated Frenchman and he would never make a threat like that but he would not allow me to burn the senior bondholders.” Whatever the details of the threat, the truth is clear: Noonan accepted in April 2011 Trichet’s instruction that he must not burn the bondholders. But he told the Irish people in June 2011 that he had a plan to do just that.

The third thing we can now be told is that all the talk of the pain of the troika deal being imposed fairly was mere propaganda. There has been an extreme official reluctance to tell us something that is of fundamental importance: who has gained and lost most in the budgets imposed by the troika. Now, we can be told. The ESRI has at last published its distributional analysis of the last budget. It exposes another piece of official spoofing, the mantra that, to quote Brendan Howlin: “We have sought to be fair, protecting the most vulnerable to the greatest extent possible.”

The truth is that, under a Labour-influenced Government, the budgets have been regressive in their social impact, hitting the most vulnerable hardest. Fianna Fáil’s “austerity” budgets hurt the best-off most. Under the troika, this mildly decent approach has been reversed. The 2014 budget took 2 per cent of the income from the bottom 20 per cent of earners – twice the average loss. “Protecting the most vulnerable” is as much a fairytale as “burning the bondholders”.

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