Noonan told bondholder burning would set off ‘bomb’

Noonan tells inquiry Trichet warned him against imposing losses on senior bondholders

Former European Central Bank president Jean-Claude Trichet warned the Government a "bomb would go off" in Dublin if the Government burned bondholders.

Minister for Finance Michael Noonan told the Oireachtas banking inquiry that Mr Trichet telephoned him on March 31st, 2011, and warned him against imposing losses on senior bank bondholders.

Mr Noonan confirmed he was late for a speech on bank recapitalisation in the Dáil because of the conversations with Mr Trichet, who he described as irate. He said the ECB president warned him a “bomb would go off in Dublin” if the Coalition announced it would impose losses on senior bondholders and pointed to a potential impact on Irish financial services, which employed up to 30,000 people.

Mr Trichet claimed this would be viewed as a default by Ireland, something the Minister described as "fairly reasonable pressure" from the ECB president.

Taoiseach Enda Kenny also spoke to the ECB president but the position did not change, Mr Noonan said. He added: “I told the Taoiseach the risk was too high and I took burden sharing out of my speech.” Mr Noonan said he did not accept Mr Trichet’s position and continued to argue for burden sharing.

However, without the support of the ECB, it became clear the Government could not continue, Mr Noonan said.

When appearing before the banking inquiry, Mr Trichet denied using the metaphor and the language attributed to him.

Mr Noonan insisted yesterday: “I can confirm to this committee he said it. He did not say an economic bomb would go off in Dublin, he said a bomb would go off.”

The Minister for Finance told the inquiry it was his belief that imposing losses on bondholders was the right thing to do. “If we were going into a programme now, we would be burning bondholders because that is the law,” he said.

The Minister also told the inquiry he was in support of the blanket bank guarantee when it was introduced in September 2008. Mr Noonan said the full information was not given by the banks to policymakers at the time of the blanket guarantee.

The former Fine Gael leader said if there was a mistake made on the night, it was that moves were not made immediately to recapitalise the banks.

Mr Noonan said the final cost of the bank bailout would be €30-€35 billion, which was the amount the previous government put into Anglo Irish Bank and half what had been envisaged. He said he would not be selling the Government's stake in Bank of Ireland and confirmed the sale of Allied Irish Banks would not be processed until late next year.

European Stability Mechanism

The Minister said he was keeping the option open of using the European Stability Mechanism to apply for retroactive recapitalisation.

Fine Gael TD John Paul Phelan and Sinn Féin TD Pearse Doherty questioned Mr Noonan on allegations made by former chief executive of the Irish Bank Resolution Corporation Mike Aynsley before the committee.

Mr Aynsley said an official in the Department of Finance urged an executive at the IRBC to accept a lower bid in the sale of a major business because a higher bid was made from a "named Irish businessperson or company".

Mr Noonan said the first he learned of allegations by Mr Aynsley was when he read it in the newspapers. “I don’t agree with the evidence that was given. Nobody has given me a copy of the email. There is a commission of investigation to deal with this. I can’t help you on this.”