The ECB still protects the banks at the expense of the EU taxpayers

Emily O’Reilly European Ombudsman and European Commission President Manuel Barroso. (European Ombudsman, photographic library).

In a courageous decision, Emily O’Reilly, the European Ombudsman, condemned the decision of the European Central Bank not to disclose a letter the central bank’s then President, Jean-Claude Trichet, wrote to the Irish Finance Minister in November 2010. O’Reilly stated: “I regret that the Governing Council of the ECB has wasted an opportunity to apply the principle that, in a democracy, transparency should be the rule and secrecy the exception. At a time when so many people have been, and are, suffering as a result of austerity arising from the economic crisis, the very least a citizen can expect is openness and transparency from those who make decisions that directly impact on their lives and on the lives of their families. Following an inspection of the letter, I am unconvinced by the Governing Council’s explanation for continuing to keep it secret.” Let’s follow the facts.

In December 2011 an Irish journalist had asked for the disclosure of the letter. He had good reasons to suspect that it included pressure on the Irish government, to enter the EU’s bailout program the previous year. It’s clear by now that the ECB had forced then the Irish taxpayers to repay at face value the imprudent loans some major German and the French banks had accorded to the Irish lenders. All those banks kept investing in the Irish real estate bubble, despite knowing that it will burst.

The criminal part of the whole affair is that the Irish taxpayers were forced to undertake and repay the loans of the failed Irish banks at face value by the EU and ECB. The Irish banks had borrowed money from major German and the French lenders. In a similar occasion, though, Iceland refused to recognize the fraudulent loans of its own three banks which collapsed at the same time as their Irish counterparts in the aftermath of the 2008-2009 credit crisis.

Iceland resisted

European Sting writer Maria Milouv on 13 December 2013 noted “Kaupthing along with Landsbanki and Glitnir, the three major Icelandic banks, went bankrupt in 2008… Unlike the rest of the western countries, Iceland’s taxpayers didn’t cover the losses of those careless banks neither did they compensate their equally careless creditors. On the contrary Ireland, confronted with exactly the same problem – when the Irish banking system collapsed – was forced by the European Central Bank to borrow around €90 billion and instructed to bail out all fraudulent bankers”.

To be noted that Ireland spent another €70bn from the country’s reserves to repay the loans of its failed banks. Today still nobody knows for sure who got all that money. Clearly Ireland went bankrupt because the EU and the ECB forced the country’s government to undertake and repay the loans of the Irish private banks in full. Before this arrangement which was engineered mainly by the ECB, Ireland’s sovereign debt was around 25% and today it has reached 125% of GDP.

Ireland forced to repay

Coming back to O’Reilly’s Press release issued last Friday, it states “The ECB justified its refusal to disclose the letter in 2011 by the need to protect Ireland’s financial stability. According to the ECB, the letter was sent in the context of significant market pressure and extreme uncertainty as to the prospects for the Irish economy”. Obviously the ECB doesn’t reveal the whole truth now. The Irish exchequer didn’t run any danger neither did the Irish economy as a whole. Only the three major Irish banks were in danger of collapse as they finally did (Anglo-Irish Bank, Bank of Ireland Allied Irish Banks), threatening to take with them in the abyss their lenders in Germany and France. The country went bankrupt and was forced to borrow from Eurozone €90bn, only after it undersigned the debts of its banks.

The problem is that the ECB and the EU didn’t allow any negotiations between the Irish Republic and its taxpayers on the one side who were about to undertake and repay the debts of the country’s banks, and the Irish lenders’ lenders on the other. The ECB and the EU demanded that the German and the French lenders of the Irish banks should be reimbursed at full face value for their imprudent loans. In all previous banking crises of the last fifty years no banks were repaid at par value for their bad loans.

Who covers whom?

This is probably the reason why the ECB still rejects the disclosure of this letter. It might contain proofs that the people involved in the case, may have personal responsibilities, because their behavior enforced disproportionate financial responsibilities on the Irish side, in direct contrast with the practice followed in similar cases, like the Latin American debt crisis of 1980s.

It’s obvious then that the ECB still has to protect not Ireland’s financial stability, but its own people who were directly involved in this affair. A well- documented lawsuit in the European Court of Human Rights though, on the grounds of the violation of the rights of the Irish taxpayers and the disproportional compensation of the French and the German lenders, may produce very interesting results. Probably such a lawsuit may be based on the statement of the following statement of the Ombudsman “At a time when so many people have been, and are, suffering as a result of austerity arising from the economic crisis, the very least a citizen can expect is openness and transparency from those who make decisions…”