Cowen and Co. were always going to seek a bailout. So, Mr Trichet, why DID you write those letters to Lenihan?
IT REALLY is a bummer to have a couple of letters that you signed (I assume some peons in the ECB had a hand in the composition) being aired in public when you, like me, should be enjoying a well deserved semi-retirement. Pensions, of course, do not make up for all we earned before receiving the wallet of notes and the inscribed gold watch. We retirees must scrabble around to occupy ourselves and to supplement the pension. You still have to struggle with the burdens of the Bank for International Settlements and the board meetings of the European Aeronautic Defence and Space Company, while also supervising a wellknown think-tank.
The last thing you need now is the outrage of a crowd of political ingrates and reptilian journalists here in Ireland over your generous offer of a handout to prevent a collapse of the Irish banking system back in 2010. No good deed, they say, goes unpunished.
The bad news, however, is that the said politicians are thinking of asking you over here for a lunch meeting and discussion on the matter. Why not? After all, if they can pin a chunk of blame on you, that means the clowns here who produced the mess you had to deal with are that much less responsible. I suggest a diary conflict, a set-in-stone prior engagement somewhere else.
Meanwhile, your successor at the ECB, Mario ‘Machiavelli’ Draghi, is not accepting any responsibility on behalf of the ECB, or you, for any downside issues involved in the offer of that hand-out. The offer was perfectly reasonable, he argues. It was a matter for the Irish Government to decide whether or not to accept. There was no pressure from the ECB, just an offer – and our acceptance. It was our decision and we Irish should accept responsibility for our decisions.
And, of course, he is right. If you are confronted by an armed ‘tiger-raider’ who requests a financial hand-out in exchange for you seeing your wife and kids again, you can choose whether or not to oblige. It’s your decision.
In 2010, therefore, we could have gone down the Iceland route. Or could we? Draghi is carefully overlooking the fact that we Irish no longer had the option of going the combination route of default plus devaluation – we were hog-tied by the euro. A unilateral default was therefore not a credible threat.
First of all, it might have been costly for them but the French and Germans could have supported their own banks against losses from loans to Irish banks. Secondly, the Americans (and, therefore, the IMF) were against an Irish default. Thirdly, it would have left Ireland with no monetary system at all.
The unavoidable conclusion, therefore, is that we were always going to seek a bailout and we know from what Patrick Honohan said on RTÉ that, in effect, this was already being negotiated. So why did you need to send that letter?
It suits everyone here to say we were bullied into accepting the bailout. Which makes you, Jean-Claude, the resident pantomime landlord villain. Meanwhile, the incompetents in the then Government who steered the country over the financial cliff are cast as the villain’s helpless tenants.
(The present Government, of course, owes you a handsome Christmas present for giving them some more ammunition in seeking debt relief. )
The bailout terms were something the ECB regarded as highly desirable – they meant that French and German banks would not be asked to take losses on the loans they made to Irish banks. That’s now official: the ECB has stated that the refusal to allow bondholders to suffer was not a principled one but reflected costs (in Ireland) versus benefits (outside Ireland). Much better that the Irish, just 1% of the EU’s population, should bail out people who lent to the Irish banks, than that an Irish bank failure should cause problems in Paris or Frankfurt! That would never do. Suppose the Italians and Spaniards had been tempted to do the same... where would that have left us all?
Of course, mon vieux, you really should have seen all this coming after 2007-2008, given what you must have known about the mechanics and objectives of the eurozone.
The euro was designed as a one-way street with no side exits whatsoever –and a set of horrific speed bumps and potholes ahead. You know very well that it was poorly designed precisely because it was anticipated that those bumps and potholes would result in further moves towards integration.
Speed bumps and potholes were one thing: the postLehman Brothers financial earthquake was another thing altogether.
It was also assumed that governments would behave sensibly and regulate their banks properly. No one foresaw the economic incompetence displayed from 2000 onwards here in Ireland. And as if that wasn’t enough, two years before you offered to help us out, we had conceived a cunning plan, devised by a bunch of political, bureaucratic and financial incompetents, to hog-tie ourselves again. How? With the famous bank guarantee.
We, and you, must both share the blame for what happened between 2008 and 2010.
Here in Ireland we may seek a fool’s pardon. We (other than a few economics Cassandras) never really understood what we had done when we signed up for the euro – a monetary union with no ‘real’ central bank (the ECB, Jean-Claude, may be based in Frankfurt, the epicentre of the eurozone, but that’s as near as it gets to being a real central bank) and with no effective regulatory or fiscal underpinning.
And you should have known that you were dealing with an economically illiterate Irish Government and civil service, a dysfunctional central bank and an array of bankers behaving badly.
On a lighter note, did you see Draghi getting away with a major piece of flummery at that press conference? No journalist was shown on RTÉ challenging him when he said that the bailout terms were a good thing because the Irish economy was now the fastest growing economy in the eurozone.
The late propagandist, Dr Goebbels, would indeed have been proud of that piece of logic! We have just had the best summer in 30 years caused by the previous three miserable ones? I don’t think so, mon
ami.