Bundesbank backed move to burn Irish bondholders

ECB thwarted German support for Irish effort

Germany's central bank threw its weight behind Ireland's failed 2010 effort to burn bank bondholders at the outset of the crisis, according to Bundesbank president Jens Weidmann.

Unlike then ECB president Jean-Claude Trichet, Dr Weidmann said the Bundesbank considered it "important to make investors bear the risks of their investment decisions" and "favoured contributions of investors" towards the cost of rescuing Ireland.

Mr Trichet, concerned that such a move might destabilise the wider euro area, blocked Ireland’s ambitions by securing a majority of the ECB governing council behind him.

Crisis narrative
The revelation challenges one popular Irish crisis narrative: that the priority of German officials in 2010 was, in concert with the ECB, to claw back full investment of German capital in Ireland by making Irish taxpayers foot the entire bill of the banking collapse.


Minister for Finance Michael Noonan, whose own attempt to impose losses on bondholders also fell foul of Mr Trichet, said he did not know the Bundesbank's position towards his predecessor, the late Brian Lenihan.

"But this wouldn't surprise me," he said in Davos yesterday. "I have never been of the view that the Bundesbank was hostile to Ireland."

Mr Noonan told Bloomberg the Government would probably test market sentiment to Ireland by selling part of its stake in AIB before the 2016 general election.

He joined Taoiseach Enda Kenny in selling Ireland's recovery to attendees at the annual Davos summit. Mr Kenny told an audience at the World Economic Forum that the "spirit of disillusion" towards Ireland on his first Davos visit in 2012 had lifted. However he warned there was "no room for any complacency".

'Light at end of tunnel'
At the second day of this year's Davos summit, Bono turned out to help fly Ireland's recovery flag. "It is just great to see some light at the end of the tunnel but still too many leaving and still too many . . . are still hurting," he said.

Around Davos, Ireland was lavished with praise from all sides for its recovery. Siemens chief executive Joe Kaeser said: "Congratulations to the Irish Republic for a job I believe has been done very well."

European Commission president José Manuel Barroso congratulated Ireland for "having interest rates lower than some countries that did not have to ask for a programme".

Derek Scally

Derek Scally

Derek Scally is an Irish Times journalist based in Berlin