Tough tone of Trichet letter to spark new controversy

The letter is understood to threaten the removal of emergency funding

The tone of the letter from then ECB president Jean-Claude Trichet to the former finance minister Brian Lenihan is supposed to be surprising. Photographer: Hannelore Foerster/Bloomberg

The tone of the letter from then ECB president Jean-Claude Trichet to the former finance minister Brian Lenihan is supposed to be surprising. Photographer: Hannelore Foerster/Bloomberg

 

New controversy about the role of the European Central Bank as Ireland entered the EU-IMF bailout in November 2010 will be fuelled by the expected release of a letter from then ECB president Jean-Claude Trichet to the former finance minister, Brian Lenihan.

The letter is understood to contain a direct threat of removing emergency funding then being provided to the Irish banking system if Ireland did not enter the bailout.

The tone of the letter is believed to be surprising, given that it was sent on November 19th, when there appeared no option for Ireland but to enter the bailout process.

The previous day the Central Bank governor, Patrick Honohan, had appeared on RTÉ’s Morning Ireland programme and said that Ireland now had no choice but to do so.

The ECB governing council will consider the release of the letter next Thursday. The fact that it is on the council agenda suggests its release is likely, and could come late next week or early the following week.

Change of mind

The late Mr Lenihan had indicated there was also a communication from the ECB around the previous Friday, November 12th, but there does not appear to have been a formal letter that day.

The letter of the 19th refers explicitly to the ECB support of the Irish banking system and particularly the emergency liquidity assistance.

This was some €50 billion in funding provided to the Irish banks by the Central Bank of Ireland, which could be ended quickly by a decision by the ECB council.

In 2012 The Irish Times reported on the details of three ECB letters sent in November 2010, which built up the pressure on the government, but the full text of the key letter of November 19th has never emerged.

The release of the letter would spark debate on whether the ECB went beyond its proper role as a central bank in its communications with the government in the run-up to the bailout.