27th Jun 2022

Irish inquiry into banking collapse begins without ECB

  • Anglo-Irish: one of the symbols of Ireland's banking collapse (Photo: Paul O'Mahony)

The Irish parliament will begin a formal inquest into the banking crisis that forced the country to the brink of bankruptcy and a €67 billion EU-funded bailout in 2010 on Wednesday (17 December).

But one of the main players in the crisis, the European Central Bank, has stated that it will not appear before deputies.

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Ireland became the second eurozone country to accept an EU rescue programme four years ago following a boom and spectacular bust of the country’s banking sector, which invested heavily in a real estate and construction that fuelled much of Ireland’s economic growth for over a decade but also sowed the seeds of the crisis.

Assuming all the liabilities held by its banks pushed the government’s budget deficit beyond 30 percent of GDP in autumn 2010, compared to an EU average of around 5 percent at the time.

However, the role of the ECB in the Irish crisis is highly controversial.

Letters between former ECB president Jean-Claude Trichet and former finance minister Brian Lenihan released in November revealed that the eurozone bank threatened to pull emergency funding if Ireland did not enter a bailout and undertake austerity measures in 2010, a move which Irish politicians say exceeded the bank’s mandate.

The Frankfurt-based bank also instructed the government to put new capital into Irish banks and said it should underwrite the money already given to lenders and guarantee its repayment.

Days later Ireland formally applied for a €67 billion bailout funded by the European Commission, the ECB and the International Monetary Fund.

For its part, the ECB continues to maintain that responsibility for the collapse rests with the Irish politicians in charge of the country’s laissez-faire banking model.

It also argues that is accountable to the European Parliament rather than national legislatures, stating in a letter that the bank "does not see itself in a position to participate in inquiries conducted by national parliaments and will therefore not appoint a dedicated contact person".

In response, Ciaran Lynch, chair of the banking inquiry committee, described the ECB’s letter as “disappointing”, and indicated that he would seek to review the decision.

The inquiry was “not about individuals or personalities but about the information that the ECB would make available to the committee to assist us in our work,” Lynch said in a statement on Tuesday.

The inquest will involve appearances from around 30 witnesses and is expected to last until mid-2015.

Ireland, which successfully completed its bailout programme last December, now has one of the fastest growing EU economies, although its debt burden has risen to over 120 percent, lower only than Italy and Greece in the 28-country bloc.

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.

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