The median across 12 advanced countries of
government-guaranteed debt issued by banks is about 6% of
GDP. Ireland was the outlier in 2009 with a sovereign
exposure of 55% of GDP.
The issue of ECB
President Jean-Claude Trichet and the Irish State bank guarantee of
Sept 2008, is reminiscent of arguments about London-Dublin cable
traffic during the Treaty negotiations in 1921. The main story of
course was why the head of the revolutionary government had decided
to stay in Dublin not communication problems.
There was no
official ECB policy in Sept 2008 on issuing blanket guarantees and
neither had EU finance ministers promoted it.
Ireland was the ONLY Eurozone country to issue a blanket guarantee
and a week later Denmark made a similar move.
According to the
IMF, the median across 12 advanced countries of
government-guaranteed debt issued by banks during the crisis or in
the case of Denmark/Ireland including existing debt, was about 6% of
order, US (2.5% of GDP), Germany (3%), Portugal, Spain, France,
Austria, Sweden, Netherlands, UK, Australia, Denmark and Ireland.
Denmark’s exposure was 20% of GDP and Ireland was the
outlier with an exposure of 55% of GDP — all the others had an
exposure below 10%.
The news on the
Irish guarantee was presented as a fait accompli to the ECB, Ecofin
and Eurogroup heads on the morning of Sept 30, 2008, coinciding with
the issue of the news to the markets.
announcement was made, it would have been very difficult to reverse
As regards the
Lenihan-Trichet phone conversation a week before the guarantee was
issued, I doubt if Trichet gave the go-ahead on a blanket bailout.
Unlike his gaffe-prone predecessor, he is always measured when
speaking on policy issues.
This story is akin to a unit of a multinational making a major
decision without any consultation with headquarters but assuming
that everything would be grand because of a conversation a week
before with the CEO.!
in a panic situation seldom turn out right.
The banks had
access to the ECB’s emergency liquidity program which was in place
since Aug 2007.
deposit guarantee could have been issued and the issue of
guaranteeing debt could have been discussed with the ECB in a calmer
If the blanket guarantee was issued to save Anglo, it was an
absolutely reckless move to make in the absence of detailed
information on the state of the bank.
context - - yes the crisis had intensified in the previous 2 weeks
after the collapse of Lehman - - but it had been 13 months since the
onset of the credit crunch; the world’s biggest insurer had to be
rescued by the US government and the prospects of an Irish soft
landing had evaporated and what did the Department of Finance have?
A Sept 18th
PowerPoint presentaion prepared by Anglo and the financial regulator
chanting his mantra on ‘resilient’ banks