Friday

22nd Jun 2018

EU 'bullied' Ireland into bailout, former Barroso aide says

  • Legrain was headhunted by Commission president Barroso in 2011 to advise him on economic strategy (Photo: Lisbon Council)

The EU's institutions 'bullied' Ireland into a bailout, a senior former adviser to the European Commission's president said on Wednesday (7 May).

In an interview with Irish network RTE, Phillipe Legrain accused the Commission and the Frankfurt-based European Central Bank (ECB) of having sided with France and Germany in insisting that Irish taxpayers were left solely responsible for the €64 billion debt burden held by its banks, a move he described as "unjust and unbearable".

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  • The EU 'bullied' Ireland into 'unjust and unbearable' bank debt burden, said Phillipe Legrain, a former economic adviser to Jose Barroso. (Photo: Lisbon Council)

"It was a mistake by the previous government to guarantee all Irish bank debts but it was outrageous to effectively threaten to force Ireland out of the euro unless the government went through with that foolish pledge," said Legrain.

Between 2011 and February 2014, Legrain was principal adviser at the Bureau of European Policy Advisers, the in-house think tank which provides economic advice to Commission president Jose Manuel Barroso.

Meanwhile, he laid the blame for 'bullying' tactics at the door of the Commission, Germany and the ECB.

"I think the bullying came from Germany because German banks were exposed a lot to Ireland and from the European Commission which aligned itself close to Germany . . . and it came from Jean Claude Trichet who sought to advance the interests of French banks," he said, adding that "in effect EU institutions were putting the interests of those banks ahead of those of Irish citizens".

Legrain also argued that the Irish government could have resisted the harsh terms demanded by Brussels and Frankfurt.

"Irish ministers should have said that it was unjust and unbearable for Irish taxpayers to bear in full the debts of Irish banks . . . which were largely owed to foreign banks who should logically have taken losses on their bad loans," said Legrain, opining that the ECB "would have blinked" because "depriving Ireland of the euro would have been seen as an abuse of power . . . and could have caused the euro to have unravelled."

When its banking sector collapsed, leaving the taxpayer to assume responsibility for multi-billion euro liabilities, most of which were accrued on the back of an unsustainable property boom, Ireland saw its budget deficit rocket to 35 percent of GDP in autumn 2010. As market confidence evaporated, Ireland was forced to accept a three year €67.5 billion three-year bailout programme.

Although Ireland successfully completed the programme last December after putting in place over 270 separate cost-cutting measures, and saw its economy return to growth in 2013, at 125 percent Ireland's debt burden is five times larger than the 25 percent of GDP it was in 2007, before the financial crisis.

As a former official, Legrain's remarks will sting the EU executive, which is highly sensitive to criticism of its handling of the crisis. In his remarks, Legrain also accused the Commission of having been "completely out of its depth". The Commission has often pointed to Ireland as a paragon of virtue among the country's to receive a bailout, by sticking closely to its austerity programme.

For his part, in a speech last December, Barroso rubbed salt into Ireland's wounds by claiming that the EU rather than Ireland had been the real 'victim' in the crisis.

"The Irish banks that created a big problem for Ireland but also the other countries in the euro area," he commented, adding that "it would be wrong to give the impression that Europe has created a problem for Ireland."

Analysis

Lessons from Ireland's failed bank guarantee

Five years after the failed Irish experiment of giving a blanket state guarantee for banks, the EU has more rules in place, but taxpayers' money is still on the line.

Focus

Irish voters reward Sinn Fein, punish government parties

Irish voters on Friday gave a strong signal to the government that they have tired of austerity, reaching out to alternative parties in the local elections and on course to do the same for the EU vote.

Letter shows ECB threat ahead of Ireland bailout

The ECB on Thursday formally made public a letter showing that the eurozone bank threatened to pull emergency bank funding if Ireland did not enter a bailout and undertake austerity measures in 2010.

Analysis

Greece facing post-bailout challenges

Creditors are expected to agree Thursday on a final loan and debt relief measures for Greece. After eight years on an international lifeline, the country will remain under close surveillance - but will have to find a new economic model.

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