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dread letter days

'Ultimatums are not the way to do business': Key IMF figure criticises Trichet letters

Ajai Chopra claimed the ECB “went beyond its mandate” in letters sent by Jean-Claude Trichet to Brian Lenihan.

90392896 Former IMF Deputy Director Ajai Chopra

FORMER IMF DEPUTY Director Ajai Chopra today criticised the European Central Bank for its dealings with the Irish government, in the lead-up to the bailout in 2010.

In his written statement to the Banking Inquiry, Chopra said the institution “went beyond [its] mandate”, in an exchange of letters between former ECB President Jean-Claude Trichet, and then Finance Minister, the late Brian Lenihan.

Asked to elaborate by Fine Gael TD John Paul Phelan, Chopra at first defended the ECB’s right to impose its preferences:

I think it is fine for the ECB and its senior management to say that if the sovereign cannot borrow on the market to recapitalise banks, then the sovereign, in this case Ireland, should seek international support from the EU and the IMF.
So those things, I think, are perfectly within the rights of a lender of last resort.

However, he went on to criticise Trichet’s approach:

But, in my view, ultimatums are not the right way to conduct business amongst euro area members and institutions, and we’ve seen that such ultimatums were delivered in the case of Ireland, through the letters that you’ve mentioned, and also we’ve seen them recently in the case of Greece.
Furthermore, and I’m coming back to the letters, discussing fiscal policy and structural reforms, in my view, goes beyond the ECB’s mandate and is not appropriate.


In letters written in October and November 2010, and published in 2014, Trichet effectively warned Lenihan that funding for stricken Irish banks would be withdrawn, unless there was a “swift response” from the government on a bailout deal.

Later today, Finance Minister Michael Noonan confirmed the long-rumoured details of a March 2011 phone call from Trichet.

Addressing the inquiry on its last day of public hearings, Noonan claimed the government abandoned their plan to burn senior bondholders at Anglo Irish Bank, after Trichet warned him:

If you do that, a bomb will go off, and it won’t be here, it will be in Dublin.

As mentioned in a statement by committee chairman Ciarán Lynch today, the Banking Inquiry has interviewed 128 witnesses over 49 days, retrieving 50,000 documents amounting to hundreds of thousands of pages.

With the hearings now complete, the committee will work up a final written report on Ireland’s banking crisis, “over the coming months.”

Read: Trichet denies telling Brian Lenihan to ‘save your banks at all costs’>

Read: These are the letters sent between Brian Lenihan and the ECB before the bailout>

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