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Ireland was 'pushed into bailout'

Published 18/06/2015

Kevin Cardiff slammed the undermining of democracies by 'backdoor media briefings'
Kevin Cardiff slammed the undermining of democracies by 'backdoor media briefings'

Ireland was pushed into its notorious international bailout, including by backdoor briefings overseas calculated to weaken the country's standing, a former chief of the government's finance department has said.

Kevin Cardiff, ex-secretary general of the Department of Finance, has also disputed former European Central Bank (ECB) president Jean Claude Trichet's claim that he "simply" advised Dublin against burning senior bondholders at the time.

The ECB did more than "simply give advice and we shouldn't hide from that", he told a parliamentary inquiry into the Irish banking crisis.

Mr Cardiff, secretary general from 2010 to 2012, said Ireland came under enormous direct and indirect pressure to enter the 85 billion euro bailout in 2010 set up by the IMF, European Commission and the ECB.

"At the moment we entered it, we were pushed - quite hard," he told the Oireachtas Banking Inquiry, which is investigating the causes of the crisis.

"The push was in some ways direct and transparent ... we knew who was doing it, we knew what they were saying.

"In other cases the pressure came indirectly via some misinformation, anonymous media briefings, reportedly coming from official sources which acted to accelerate market pressure and create enormous pressure on Ireland to enter an EU/IMF programme - quickly."

Mr Cardiff said although he was grateful for the international expertise and commitment to Ireland's rescue, he slammed the undermining of democracies by "backdoor media briefings".

"Democratic systems should not rely on undermining reputations and distributing misinformation via anonymous briefings," he said.

However, he added the ECB had its reasons amid a wider looming crisis in Europe to push Ireland into a bailout.

At the time, it was "quite unlikely" that Ireland could finance itself the following year.

Mr Cardiff claimed former IMF chief Dominque Strauss-Kahn was in favour of burning senior bondholders - forcing top-level investors, like institutions, to share the losses of the crash in banking stocks.

Mr Strauss-Kahn was sure he could persuade Europe, the US and other major players to come onboard but was shot down by the ECB in a global conference call set up to push for the arrangement, the inquiry was told.

Europe was teetering on the brink of a serious crisis at the time, and there were fears the Irish plan would create a new Lehman Brothers-style plunge, with one ECB figure at the time warning it would wreak havoc, he added.

There were also worries about an international "bond-buying strike" on Europe.

The ECB warned the bailout would be pulled if Ireland insisted on senior bondholders taking their share of the losses, said Mr Cardiff.

In the event, Ireland had no choice but to rule out the option, he said.

Mr Cardiff was also head of the Department of Finance's banking unit during the controversial 2008 state guarantee of six struggling banks.

The former civil service chief said there were alternatives to the blanket guarantee, and he favoured nationalising rogue lender Anglo Irish Bank and giving a broad political guarantee for the others.

Although he was overruled, he said he is still not sure which option would have been best.

The government and the banks were trying to find the least worst course of action as two banks were about to run out of money, he said.

Anglo was facing not just a wholesale run but a "good, old fashioned queues-on-the-street run" within a day or two of the guarantee, while Irish Life and Permanent was also expected to run out of cash at around the same time, he said.

"There were no costless options," he added.

"Things could have been different. But they might have been a lot worse. It would have been a big gamble to wait a few more days."

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