Central Bank of Ireland governor Patrick Honohan has said it would have been a "mistake" for him to notify the government he was planning to go on national radio to declare that the country was in discussions to enter an EU-IMF bailout in November 2010.
Speaking at the Oireachtas Banking Inquiry today, Mr Honohan said it would have represented a “surrendering of the [Central Bank’s] independence” although he acknowledged that it might have been a courtesy to inform the Ceann Comhairle or the secretary general of the department of the Taoiseach.
“It would have been a courtesy but didn’t occur to me in my anxiety to get the message across,” he said.
The governor said his interview on RTÉ radio's Morning Ireland programme on November 18th, 2010, was motivated by the "sense of growing panic in the financial sector that the Irish situation was getting out of control".
Mr Honohan was in Frankfurt at the time he made the call to RTÉ but said he was not pressured by the ECB to do so.
Mr Honohan said that on the previous day, a eurogroup meeting of finance ministers had involved a discussion urging Mr Lenihan to announce that Ireland was looking to enter an EU-IMF bailout fund.
Mr Lenihan rejected this call, saying he did not have the authority to do so and it would require a government decision. Mr Honohan said there was a “sense of alarm” among the governing council in Frankfurt about this and he was asked to “convey” this message to Mr Lenihan.
“They were all at one in saying you should be going into a programme,” he said, adding that this was his view, too.
Mr Honohan phoned Mr Lenihan at 9 or 10pm on November 17th and relayed this message. Mr Lenihan replied: “I can’t do that, I need a government decision.”
“He was very cross, there was no talking to him,” Mr Honohan said.
Mr Honohan said he began to “worry that I wasn’t doing enough” as there was a “sense of panic” with significant outflows of deposits from Irish banks.
He began thinking that he should go on radio and say “we have loads of money” to reassure people that their savings were secure.
In the corridor of the ECB’s building in Frankfurt he asked other governing council members if they would contradict him if he stated that the ECB would give Ireland “unlimited money” to support the banking sector.
The answer was “we will contradict you because we can’t give an open ended guarantee”, he said.
Mr Honohan decided that he would “probably” be able to “convince people” that the Central Bank of Ireland would provide the money to the system although he kept his language in the radio interview as general as possible.
On what reaction he expected from the government to his radio interview, Mr Honohan said: “I knew they wouldn’t be all that happy with me making the announcement but I didn’t realise they’d be so unhappy.”
Mr Honohan added that regardless of his radio interview, the government could have said no to accessing a bailout programme.
In addition, Mr Honohan said the ECB “inadvertently” did Ireland a favour by not directly bailing out the country’s banks, with the result that the country was required to seek a bailout.
Mr Honohan said that Ireland could have “staggered” on in 2011 and 2012 if the ECB had decided to fund the Irish banks but the interest rate charged on the State’s bonds would have continued to ratchet up.
“Now we’d be saddled with much higher debt servicing costs,” he said. “It [ECB] inadvertently did us a favour.”
Mr Honohan said Ireland went into the bailout at a “good time, not too soon, not too late”.
