Banking inquiry: Chopra says ECB gave Ireland ‘ultimatum’

Former IMF deputy director says ECB worsened economic crisis

Letters exchanged between European Central Bank (ECB) president Jean Claude Trichet and then minister for finance Brian Lenihan in 2010 show Ireland was being issued an ultimatum, former International Monetary Fund (IMF) deputy director Ajai Chopra has said.

Speaking before the Oireachtas banking inquiry, Mr Chopra said it was within the ECB's right to ask about the viability and the solvency of the banks it is supporting.

He said: “It is within the ECB’s rights to ask about how the problems banks are gong to be addressed.

“In addition, it is fine for the ECB and senior management to say if the sovereign cannot borrow on the markets than the sovereign should seek international support from the EU and the IMF.


“It is perfectly within the rights of the lender of last resort. Ultimatums are not the right way to conduct business. You have seen such ultimatums were delivered in the case of Ireland and more recently in Greece.”

Mr Chopra denied early contacts with the Irish Government in early 2010 did not warrant a formal request for assistance.

He said the process was to inform the Irish authorities as to how the IMF would help.

Mr Chopra said: “It was the beginning the process of telling the Irish authorities the right time to enter a programme when it is vulnerable and not when it is in a full blown crisis.”

Mr Chopra, who was the designer of Ireland’s bailout programme from 2010-2013, said he unwillingly had become the face of the bailout programme.

Burning bondholders

Fianna Fáil’s Michael McGrath asked if he believed the ECB would not agree to a programme if the country had pushed for burning of senior bondholders.

Mr Chopra said it would have not been possible to agree a bailout if Ireland pursued that. He said it was his belief up to €8 billion could have been saved if imposing losses was allowed.

Mr Chopra said said it was believed there should have been a distinction made between failed banks including Anglo Irish Bank and Irish Nationwide when pursuing the option of burning bondholders.

He earlier criticised the ECB for worsening Ireland’s economic crisis.

He said the decision by the European institution to rule out the burning of senior bondholders resulted in a “higher burden for Irish taxpayers and a higher public debt”.

He said assistance from the ECB was begrudgingly provided and Europe’s stance that countries must solve their own problems “worsened the crisis”.

He said the public should be proud of the public servants that worked under difficult circumstances to help Ireland during its programme.

Mr Chopra also said expenditure had been “ramped up” during the boom and adjusting fiscal measures had to be at the centre of the solution.

He said: “Ireland had a classic boom bust cycle driven by a property cycle. It had serious consequences for the bank, very serious consequences for the public accounts and consequences for the economy. They were intertwined.

“The core of the crisis was a banking property type crisis.”

He said the design of the blanket bank guarantee led Ireland to a funding cliff, which inevitably saw them enter a bailout.

He later said the European Stability Mechanism - the new bailout fund established by the European Union - was inadequate.

He said he did not believe it would make any material difference if another major bank was to go bust.

Mr Chopra said there were still risks in Ireland including rising property prices.

In the second hearing at 11.45am, the inquiry will hear from Marco Buti of the European Commission. Mr Buti will give evidence on the European Commission's role in monitoring the Irish economy in the years prior to the banking crisis.

Finally, Minister for Finance Michael Noonan will appear at 2.30pm. Mr Noonan will be questioned on the Government's response to the crisis since taking office.