“The inquiry found that the central bank, the I.M.F. and the European Commission, would not have agreed to bail out Ireland had the government decided to burn so-called senior bondholders, the investors who own bonds that are supposed to be the last in line to suffer losses. The E.C.B. was determined that no bank in Europe would be allowed to fail.”, Douglas Dalby/Jack Ewing, “Report Faults E.C.B. in Irish Banking Collapse”, NYTimes, January 28, 2016

International Business

Report Faults E.C.B. in Irish Banking Collapse

By DOUGLAS DALBY and JACK EWING

DUBLIN — The European Central Bank placed an “inappropriate” debt burden on Irish citizens in 2010 when it refused to force bond investors to share losses from troubled banks, a parliamentary committee report on the country’s banking collapse said on Wednesday.

The report supports the view, widely held in Ireland, that the E.C.B. dictated policy to the government in a way that punished taxpayers while sparing investors who owned bonds issued by Irish banks.

The central bank, which is based in Frankfurt, routinely denies that it meddles in politics or tells eurozone governments what to do. But the report is likely to bolster critics who say that, in its zeal to protect the banking system, the bank has strong-armed political leaders not only in Ireland but also in other countries hit by crisis, like Greece and Cyprus.

The E.C.B. said in a statement on Wednesday that it welcomed the report, which it said provided “a valuable contribution to an understanding of the crisis.” The central bank said it had been open about its role in Ireland but declined to comment in detail on the report.

The 400-page report, published Wednesday afternoon, says that in November 2010 and again in March 2011, the central bank explicitly threatened to withhold emergency support to Irish banks if the government imposed losses on holders of bank bonds.

The inquiry also found that the so-called troika of lenders — the central bank, the International Monetary Fund and the European Commission — would not have agreed to bail out Ireland had the government decided to burn so-called senior bondholders, the investors who own bonds that are supposed to be the last in line to suffer losses. The E.C.B. was determined that no bank in Europe would be allowed to fail.

While the report finds significant fault with Ireland’s oversight of its banking system, it is particularly scathing of the European Central Bank’s role in managing the aftermath of the system’s collapse from 2008 to 2010.

The bailout initially cost Irish taxpayers €64 billion, or $69 billion at current exchange rates — the equivalent of 33 percent of Ireland’s gross domestic product. This figure was subsequently lowered to around €40 billion after debt refinancing. According to the National Treasury Management Agency of Ireland, government debt peaked at 120 percent of G.D.P. in 2013 and is still hovering at just below 100 percent.

Jean-Claude Trichet, who was president of the E.C.B. during the Irish banking crisis, said in testimony to the parliamentary committee last year that investors had shared in the losses. Holders of so-called subordinate debt, which is more exposed than senior debt to losses, lost €14 billion while bank shareholders lost €29 billion, Mr. Trichet said in April.

“The E.C.B. simply gave advice on this issue,” Mr. Trichet said. “The E.C.B. indeed doesn’t have any authority to issue instructions to euro area governments or to ministers.” Mr. Trichet left the central bank in October 2011 after his term expired.

Over several months, the parliamentary committee, which included members of the major parties, interviewed senior and former senior bank officials, prime ministers, senior politicians, civil servants, central bank officials and property developers. However, the committee was criticized in many quarters because its powers were limited.

Pearse Doherty, finance spokesman for the Sinn Fein party, was one of two members of the committee who refused to sign off on the report, which cost €5 million to create.

“While the report includes new information, it fails to fully answer the questions regarding how the crisis came about and who was responsible,” Mr. Doherty said.

Sean Barrett, an independent member of Parliament who did sign off on the report, was also critical of the process, and gloomy about a possible recurrence of financial crises.

Writing in The Journal, an Irish news website, Mr. Barrett criticized what he said was “the dysfunctional cultures in official organizations, the disregard for facts and differing viewpoints in the public and private sector and a legislature that is encouraged not to think, argue or investigate.”

“Business as usual has become the order of the day, reform fatigue has set in and the seeds of the next crisis are already being cultivated,” Mr. Barrett wrote.

The fallout from the banking crash is still apparent. Although Ireland has recorded the highest growth in Europe over the past two years, the country continues to suffer the effects of the crisis. Hospitals are postponing operations because of funding cuts, unemployment is around 9 percent, and the number of people leaving the country remains high.

Douglas Dalby reported from Dublin, and Jack Ewing from London.

A version of this article appears in print on January 28, 2016, on page B2 of the New York edition with the headline: Report Faults E.C.B.’s Response to Ireland’s Banking Collapse.

Posted on February 1, 2016, in Postings. Bookmark the permalink. Leave a comment.

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