EX-IMF chief Ajai Chopra: ECB 'only grudgingly provided' support to Ireland's banks
European banking chiefs overstepped their role by giving Ireland an ultimatum ahead of its punishing international bailout, a former International Monetary Fund (IMF) chief has said.
In a scathing attack on both Frankfurt and Brussels, Ajai Chopra, ex-deputy director of the IMF, said Europe worsened the economic crisis at the time and lumped more debt on Irish shoulders.
The ECB and the European Commission (EC) often put their own rules and concerns above Ireland’s plight during the country’s embarrassing slide towards economic collapse, he added.
Mr Chopra was the public face of Ireland’s €85bn rescue programme, funded by the IMF, the ECB and the EC, between 2010 and 2013.
Letters from then-ECB president Jean Claude Trichet to the late former finance minister Brian Lenihan, released last year, confirmed the Irish Government was warned crisis funds propping up collapsed banks in 2010 would be withdrawn unless they sought the bailout.
The missives also demanded a written commitment to austerity measures, spending cutbacks and an overhaul of the financial industry.
Mr Chopra said they showed the ECB acted “beyond its mandate”.
“In my view, ultimatums are not the right way to conduct business amongst euro-area members and institutions, and we’ve seen such ultimatums were delivered in the case of Ireland,” he said.
“We’ve also seen them recently in the case of Greece.”
Mr Chopra also said it was not appropriate for the ECB to demand reforms from a sovereign country.
He said money was only pumped into the crippled Irish banking system “grudgingly” and a lack of European solidarity during the crash was “terribly damaging” for the country.
Before a parliamentary inquiry into the banking crisis in Dublin, he said the IMF faced an unusual set of challenges trying to bring stability back to Ireland because euro chiefs had their own interests.
One obvious example, he said, was the question of burning senior bondholders - forcing top-level investors in Irish banks, like institutions, to share the losses of the crash in banking stocks.
Mr Chopra said such a move, which he agreed with, could have saved Ireland €8bn.
However, European institutions “focused on wider euro-area concerns even as this resulted in a higher burden for Irish taxpayers and higher Irish public debt”, he said.
A former special adviser to Mr Lenihan told the inquiry yesterday that the ECB, backed by the EC, blocked Irish attempts to make senior bondholders share the pain.
Mr Chopra said the ECB was an enormous creditor to Ireland, and no other euro-area country received as much support relative to the size of its economy.
“But this support appeared to be only grudgingly provided and its availability and stability did not seem assured,” he added.
“More supportive public statements by the ECB about ensuring the provision and stability of liquidity support as needed would have helped restore confidence in the banking system.”
Mr Chopra said greater solidarity was needed in the euro area to prevent “adverse feedback loops” between banks, the country and the real economy which were “terribly damaging for Ireland” and other countries.
“Europe’s decision to require each country to resolve their own banking problems individually worsened the crisis,” he said.
Mr Chopra also hit out at the refusal of Europe to recapitalise banks on a euro-wide basis, or to open other “low risk” schemes, such as lowering the cost of tracker mortgages, to bolster banking profits and boost lending.
“Such additional support for a country such as Ireland would have had a positive pay-off, making it an investment worth undertaking,” he said.
On a broader point, he said the crisis revealed Europe is not ready for a fiscal and financial union and without such solidarity the eurozone monetary union will remain fragile.
While European bank recapitalisation schemes are now in place, funding for them is “woefully inadequate”, he added.
Mr Chopra said Ireland had a classic boom bust cycle which was “predominantly home-grown”.
Also before the final public hearing in the Oireachtas Banking Inquiry, Marco Buti, director general for economic and financial affairs at the European Commission, said he agreed that Ireland’s crisis was home-grown.
The banking inquiry has heard from 128 witnesses over 49 days of public hearings, since December last year.
Parliamentarians leading the investigation will now examine the oral and written evidence before preparing a final report which is expected to take months to complete.
