Ireland, Euro area Governance et l’art de mentir: Past, Present and Futur
Jean-Claude Trichet
Institute of International and European Affaires
Dear Members of the Parliament Irlandais,
It is for me an immense plaisir and a great honneur to be here, today, with what passes for the élite of your country, at this place where I deign to assert above all my primacy and the supremacy of the institution I love – over your national sovereignty.
First and foremost I want not to apologise for anything, indeed to offrir some counter-factuals that challenge the facts as you all know them. In particulier I will try out some Banco-Franco porcies that you will not be able to disprove primarily because l’homme who really knows their details – Brian Lehihan – “Brian” – is not here to shout “lie”.
After that I wish to patronisingly (in fact I prefer the term ‘patrician’ to the confusingly French ‘patron’) acknowledge the major achievements made by your country. I will not mention the augmentation in your debt-to GDP rate from 25% to 114% between 2007 and now, nor le fait que GNP is still below what it was in 2008. I will instead loftily refer to how Irlande returned to market financing well before the end of the programme in end-2013. The stability of the banking system has been largely restauré. And, most importantly, since 2014 the economy has been recovering at an impressive vitesse, to the benefit of the Irish people about whom I know nothing and care less. Or in terms that they understand: nous nous en fichons.
You will be familiar with the story of the tourist in a remote area in Ireland who asks a local for directions to Dublin. The local man replies: “Well, if I were you, I wouldn’t start from here”. When the crisis started in mid-2007 many policymakers had the very same feeling as that local man. More importantly this is a story which reflects my disdain for your little country and my general tin ear to all things local. When I have ever thought of your country, it has always been that little man in a remote area, without a clue about anything. A forelock tugger of the sort that even stereotypes long ago binned.
From my perspective as President of the ECB, I remember clearly the huge uncertainty. Had central banks across the globe not come together to chart a course the outcome could have been a repeat of the 1930s. I have no awareness that in fact the economic outcome was indeed worse in your country than during the Great Depression.
The crisis revealed major deficiencies in governance for the Euro, ranging from the refusal by some Member States to comply with the Stability and Growth Pact to a benign neglect of major divergences in competitiveness, from the absence of a crisis resolution framework to the lack of a banking union. Neverthess I want brazenly to deny the realité that a central bank like the ECB was always responsable for maintaining economic stability as it implicitly acknowledged with its actions after the onset of the crisis.Your Nyberg and Honohan reports are most notable for not blaming anyone, an Irish concern with which you will not be surpris to entendre that I am bien confortable. These reports document well the deficiencies in national banking regulation and supervision during the boom years, quand financial stability risques were underestimés. And, let moi remind you, at the time the ECB had no responsabilité at all for banking supervision or macro-prudential policies in Member Etats. This changed only after the crisis.
The so-called “principle based approche” to supervision assumed implicitly that banks would control their risk taking. Burgeoning credit growth and the consequent expansion of banks’ balance sheets, giving rise to highly concentrés exposures to the construction industrie and property sector, should have sounded the alarm, even for you gombeens. Mais ah non! Fuelling this expansion was an unsustainable bank funding model. Credit croissance was financed increasingly by the wholesale marché, which provided the funding scope for the loan-to-deposit ratio of certain major banques to reach levels of 200 percent by 2007.
But it is also important to note that the guarantee was introduit by the Irish Government, without any coordination with the ECB and the other European partners. The ECB, shortly after the fact, was critical of some aspects of the guarantee, as can be inferred by reading our legal opinions at the temps. There is no end to the preciousness I bring to bear in drawing attention to this.
As we know, the garantie triggered later an intense negative spiral between the banking secteur and the sovereign. The so-called “CIFS cliff” – the wave of debt maturing in September 2010 issued under the guarantee – confirmed Ireland’s loss of access to sovereign markets. Combined with other factors, such as the ever-worsening fiscal position, the Irish government was confronted with no alternative but to ask for official support. I am absolument ready to forget that in Autumn 2010 I told Brian he could sting his unsecured, unguaranteed bondholders only to illegally withdraw the offer when I realised the effect that would have on banks from countries that actually matter. And take it from me I will not be referring to my ‘gun to the head’ letter to Brian Lenihan of 19 November 2010, stating that the Bank could only autorise further liquidity funding assistance to Irish banks if it received a commitment in writing from the Irish Government that it would send a request for financial support.
At the same time, it should not be overlooked that, over the period 2009-11, the holders of subordinated debt issued by Irish banks incurred burden-sharing in the order of €14 billion. In the same vein, shareholders’ write-downs exceeded €29 billion. As such, the private investors in the Irish banking system endured considerable losses.
The crise that befell Ireland after 2007, and the hardship that it caused for so many peuple, was a tragedie. But it was not an accident. It resulted from a series of failures in policy. What is most important today, however, is to be pompous, unaccountable and tetchy about it. To fix what needs fixing so that such a terrible event can never happen again. I am inevitably confident that we – as individuel countries and as a union – are now very much on the right track. You may now attempt some ineffectuel preprepared questions. •
