Trichet letter is reminder of ‘cold and dark place’ country was in

The letter sent by then European Central Bank (ECB) president Jean-Claude Trichet to former finance minister Brian Lenihan was a "stark reminder of the cold and dark place" that the country was in, just a few years ago, Taoiseach Enda Kenny has said.

His comments come amid revelations in The Irish Times today that the ECB explicitly threatened in late November 2010 to cut off emergency funding from the Irish banking system unless Ireland applied for a bailout.

The letter, obtained by this newspaper, states that the governing council of the ECB would only agree to provide further emergency liquidity assistance (ELA) to the banks if it received “in writing a commitment” from the government to apply immediately for a bailout.

Mr Kenny said the letter was also “a reminder of what we can never let happen again.”

Speaking at the publication of the latest report on the Government’s Action Plan for Jobs, he said the root of the State’s financial problems began with the election of the Fianna Fail-led government in 1997.

“Prior to that the country was lean, competitive, export driven with a very good cost base and structure; then all was let go to the wind by the assumption you could run the country on taxes coming from property.”

“By the time the letter had been written, the Governor of the Central Bank had already been on Irish radio, saying that the IMF were here, the die was already cast.”

Mr Kenny said letter would be of interest to the Oireachtas committee during the banking inquiry.

Tánaiste Joan Burton said the late Brian Lenihan was a personal friend and the letter “brings back” the tragedy of his passing.

However, she said the cause of the State’s financial woes, as the letter states, was the “unilateral bank guarantee”.

“The State didn’t have the resources to fund the guarantee that it foolishly gave,” she said.

Speaking to reporters on his way into a meeting of the Cabinet’s Economic Management Council in Dublin earlier , Mr Noonan said the letter “is going to be a vital piece of documentation for the banking inquiry so I don’t want to comment either way because the banking inquiry is up and running now.

“Obviously they will want to discuss the issues not only arising in the letter but around the letter.”

Mr Noonan will travel to Brussels this afternoon for a Eurogroup meeting. A spokesman from the Department of Finance said: “the ECB contacted us in advance of its meeting today to consult with us. We made no objection to it being published”.

Minister for Expenditure and Reform Brendan Howlin said the content of the letter “will come as a shock to many people, and certainly on our interactions with the ECB on coming into government, we understand the sorts of demands and pressures that they put us under at that time.”

Much of the reaction to the letter has focused on the pressure placed by the ECB on Ireland to accept a bailout. The letter was like a “loaded gun pointed in [GOVERNMENT’S]ear,” said Paul McCulley, chief economist with trading firm Pimco.

“You do whatever you do when you have a gun in your ear. You hand over your wallet, you are not supposed to feel good about it. But it is the locgical and rational thing to do at that moment,” he told RTÉ’s Morning Ireland.