THE THREE-PAGE LETTER you see below was written by the late Brian Lenihan, then the Minister for Finance, to the former president of the European Central Bank explaining why Ireland had been forced to ask the EU and IMF for a bailout.
The letter – dated Sunday 21 November, 2010 – was written after the cabinet had met to discuss whether Ireland should seek a bailout. The bailout was formally signed off upon seven days later.
The letter is a response to a missive from Jean-Claude Trichet, the president of the ECB at the time, who had written to Lenihan two days previously.
It remains unclear whether Trichet’s letter of the 19th is the one which ‘bounced’ Ireland into its bailout, or whether that communication came on November 12th, as has been suggested in the accounts of Lenihan himself and his former advisor Alan Ahearne.
From the tone and content of Lenihan’s response, however, it is clear that the original letter from Trichet had raised grave concerns about the dependency of Ireland’s banks on emergency funding from the ECB itself – and may have threatened to withdraw their access to it.
Indeed, the letter – which officially informs Trichet of Ireland’s plan to look for a bailout, and came shortly before that application was officially made – sees Lenihan appeal to Trichet “to reiterate in a public way the continuing practical support of the ECB for the liquidity position”.
This is an attempt “to help to reassure the market on this crucial point”, Lenihan said, having opened the letter by acknowledging the ECB’s concerns “in regard to the implications of the current situation of the Irish banking system”.
The three-page letter, which summarises the intense – but ultimately unsuccessful – efforts Ireland had made to reassure investors of its own health, deals almost exclusively with the crisis of confidence caused by the continued problems at Ireland’s banks.
The credibility of projected bank loan losses was increasingly called into question by analysts and investors – there comes a point at which negative sentiment starts to feed on itself, even independently of underlying realities, and we are clearly at that point.
Lenihan said he was pleased to see that a recent “intensive examination of the Irish authorities’ work on capital requirements” had not found any “new and unanticipated ‘hole’ in the banks’ capital position”.
Four months later, with Fianna Fáil having been booted from power at a general election and Michael Noonan having taken over, another round of stress tests showed the banks needing €24 billion in extra capital – having already received €32 billion under Lenihan’s watch.
The letter is one of three documents previously withheld by the Department of Finance, after Freedom of Information requests from TheJournal.ie and others.
They have been released to TheJournal.ie this week, however, because the European Central Bank has independently released them to Gavin Sheridan of TheStory.ie following his own requests to the ECB.
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