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ECB - We didn't force you into the bailout, as letter is released

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President of the European Central Bank Mario Draghi

President of the European Central Bank Mario Draghi

AP

Jean Claude Trichet

Jean Claude Trichet

AP

"Lenihan wanted room to manoeuvre to either avoid a bailout or burn more bondholders"

"Lenihan wanted room to manoeuvre to either avoid a bailout or burn more bondholders"

President of the European Central Bank Mario Draghi

THE European Central Bank's top official has denied pushing Ireland into a bailout, with president Mario Draghi saying it "was a decision by the Irish Government".

Mr Draghi was speaking following the release of a series of letters between his predecessor, Jean-Claude Trichet, and the late Finance Minister Brian Lenihan in the lead-up to the EU-ECB-IMF bailout of late 2010.

In one of the letters sent on November 19, 2010, Mr Trichet threatened to cut off all emergency funding for the banks unless Ireland immediately applied for a bailout.

Taoiseach Enda Kenny said the letter is a reminder "of what we can never let happen to the Irish economy again, we must never roll back to that disaster area again".

Current ECB President Mr Draghi denied that Ireland was forced into the deal, when questioned by reporters.

"The very short answer would be just read the four letters and they would give you the whole story. The decision to ask for a programme was the Government's decision. It was not the ECB forcing [it] to do this."

The letters between the two main players in the crisis were finally revealed four years after the crisis and give some insight into the dark days towards the end of 2010.

Mr Trichet's letter dated November 19, 2010 - which refers to Mr Lenihan in error as the Tanaiste - warned that Ireland would only get further financial assistance from Europe if it applied for a bailout.

austerity

He said that the Government must agree "fiscal consolidation" and "structural reforms" - in other words austerity measures with the troika - among a number of conditions he set out.

He urged Mr Lenihan to respond quickly, saying: "I am sure that you are aware that a swift response is needed before markets open next week".

Mr Lenihan wrote back two days later setting out the attempts the Fianna Fail/Green Party Government had made to repair Ireland's devastated banking sector.

He cited the 2008 bank guarantee and the establishment of NAMA in the following year to remove the riskiest development loans from the banks books.

However, he conceded that the condition of Irish banks had continued to deteriorate due to the Greek debt crisis, concern about the recovery of the US economy and credit ratings actions and negative market sentiment, among other issues.

"These events led to a crisis of confidence in both the Irish banking system and increasingly the Irish sovereign," he wrote.

Later in the letter Mr Lenihan formally requested the bailout.

"I would like to inform you that the Irish Government has decided today to seek access to external support from the European and international support mechanisms.

"This grave and serious decision has been taken in light of the developments I have outlined above and informed by your recent communications, and the advice you have conveyed to me personally and courteously in recent days."

Mr Lenihan referred to talks with European Commission, IMF and ECB officials that had taken place in the days leading up to his letter saying: "There is a potential programme which will be both workable and effective".

He concluded his letter: "You know that we here will not be lacking in the will to do all that is necessary on our part to protect our economy and to play our role in the Eurosystem."

There have been calls for Mr Trichet to appear at the upcoming Oireachtas Banking Inquiry.

ANDREW LYNCH: P16


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