THE EUROPEAN authorities believed Ireland faced an EU-International Monetary Fund bailout for more than two months before Dublin finally capitulated to international pressure to take external aid one year ago, The Irish Timeshas learned.
The European Commission started making contingency plans for a possible Irish bailout in September last year and contact was initiated that month with the IMF.
In the early part of that month, according to a well-placed source, the most senior officials in the Department of Finance and the Central Bank warned the late Brian Lenihan the State might need to be rescued. With Irish borrowing costs rising rapidly to unsustainable levels from the beginning of the autumn, EU economics commissioner Olli Rehn and Mr Lenihan agreed in the third week of September to keep the IMF posted about the deteriorating situation in Ireland.
There was concern in Brussels at that time that the IMF’s focus was on the pressure on Spain and Portugal and that the rising cost of the Irish bank bailout meant the IMF would have to turn its attention to Ireland very soon.
“I would say that latest, from mid-September in my thinking, the probability of Ireland avoiding a rescue package was very small,” Mr Rehn said. The commissioner also said it was apparent well before his visit to Dublin on November 8th and 9th, 2010, that Ireland would need a bailout. “For some time then, we had known that we had to move towards a programme.”
Mr Rehn’s remarks are set out in a new account today of the events leading up the rescue, which precipitated the then government’s implosion and Fianna Fáil’s worst election result. Brian Cowen, then taoiseach, and his ministers denied for weeks there would be any rescue but the government finally applied for aid on Sunday, November 21st, three days after top IMF officials arrived in Dublin.
The account reveals that Mr Lenihan moved to step up contact with the IMF as early as the weekend of November 6th.
Officials in Brussels and Frankfurt, home of the European Central Bank, had concluded days before then that Ireland had no prospect of restoring market confidence.
Dublin resisted a bailout, however, and there was frustration in Europe and beyond that the government was not facing up to a problem which was stirring turmoil elsewhere in the euro zone. Crucial here was the increasing weakness of Anglo Irish Bank, which senior European officials saw as the “most serious global banking issue” since the Lehman Brothers bankruptcy in 2008.
Fears that Anglo might default on some of its obligations – triggering payments on credit default swap insurance contracts – led US treasury secretary Timothy Geithner to urge Europe to assert control over the situation during a G20 summit in Seoul on November 11th.
Mr Geithner made his concerns known at a meeting that night of finance ministers from the G7 industrialised nations – the US, Germany, France, Britain, Canada, Japan and Italy. The meeting followed a dinner meeting of the wider group of G20 finance ministers.
Late that night, Mr Rehn phoned Mr Lenihan from the summit and European Commission chief José Manuel Barroso phoned Mr Cowen.
Although these interventions reflected the concern of global leaders that Ireland’s position was increasingly unsustainable and risked triggering contagion in markets, the government continued to assert that there would be no rescue.
Mr Geithner intervened for a second time when Ireland’s negotiation with the EU-IMF-European Central Bank “troika” was drawing to a close on November 27th. In a teleconference with the G7 ministers, he argued forcefully against any move to impose losses on the holders of senior bonds in Ireland’s banks. Two sources said it was only then that the IMF, which argued it was feasible to tackle senior bondholders, agreed to take the matter off the agenda.
Irish negotiators had pressed for “burden-sharing” with senior bank bondholders but they met immediate resistance from the ECB.
