There is anew circus in downtown Dublin and this time around it is the courtesy of the old culprit the infamous ECB letter from Trichet to the late Minister for Finance, Brian Lenihan.
The letter was (again, for the n-th time) brought to our attention by Professor Karl Whelan in his forbes.com post (here) and the issue championed by Gavin Sheridan of gavinsblog and http://www.thestory.ie. This time around the mention raised some noises from the Minister for Finance Michael Noonan (here).
We can only speculate as to Minister Noonan's motives for promising, at last, to publish this letter. My suspicion is two-fold:
- Nothing penetrates the skulls of Irish establishment other than bad publicity in international press. Frankly put, years of criticising Governments policies have taught me several lessons. One of them is that an article in the Irish Times causes an 'outrage' and 'indignant' denials. An article in the likes of Forbes or Wall Street Journal or FT causes real 'concerns'. Ireland's elites are incapable of reassessing their adopted positions (on policy or transparency or anything else) unless their silence can damage their standing with the MNCs and within international community.
- We might be getting a pre-management of what is likely to be a fizzling-out of the Government efforts to deliver on the 'seismic' June 29 EU summit commitment 'to re-examine' Irish banks bailouts.
The above are speculative arguments, solely to raise some questions, but the change in Minister Noonan's rhetoric is indeed rather dramatic.
Italy received a similar letter and it was leaked to the press back in August 2011 (see here). The world didn't end and Italian economy did not collapse. ATMs still function. The ECB sent a similar (in nature) letter to Spain, and that letter remains undisclosed to the public. Minister Noonan could, in my view, make the letter fully public at any moment in time by simply ordering it to be published. All that stands between Minister Noonan's stated intention of publishing the letter and the actual publication of the letter is... err... Minister Noonan's will.
Of course, for historical reasons and for the sake of transparency, the ECB letter is important. As an aid to securing Ireland's future, it is relevant only in so far as it raises real questions relating to the competence of our permanent 'elite' - the Government advisers and the senior civil servants.
What concerns me most is the mythology of the nation that will have to be destroyed if the letter really does contain a threat from the ECB of the withdrawal of ELA or funding for Irish banks in response to any unilateral action taken against the banks bondholders. The mythology at risk here is that the then Minister for Finance, and his advisers and the Department, plus the Central Bank and other authorities of the Irish State actually acted within the full extent of their capabilities in protecting the interest of the taxpayers and the State.
Think about it: can such a threat from the ECB be credible?
The alleged threat contained in the ECB letter is that the ECB were to turn off the liquidity taps to Irish banking system because imposing haircuts on banks bondholders would have risked a full contagion from Irish banks to the Euro system or its financial system at large. Suppose this is so. Surely, turning off the liquidity tap in such a case would have risked a full-blown and immediate collapse of the entire Irish banking system (as opposed to the partial insolvency triggered in some banks by bondholders actions) - the very same system that is, allegedly, so vital to the European banking system that even a handful of disgruntled bondholders relating to Irish banks could trigger a run on the European banking.
This is (a) highly alogical, and (b) unlikely to have passed the ECB council vote.
Worse than that: such a threat would have forced Ireland to exit the Euro system and monetize the banking system with own currency - an event that would have threatened much more than just the stability of the Euro area banking system, but the existence of the Euro as a currency.
Thus, if the threat contained in the letter is that of the liquidity starvation, such a threat could not have been credible when it was made. Which implies that either the letter contains some other threat, or that the Government at the time was simply out of its depth in dealing with the crisis.Setting aside, for now, the possibility of the former, the latter, if true raises another set of questions: Where were the Government advisers (especially the ones who are today still in the position of considerable power and authority)? Where were the senior civil servants (pretty much all of whom are still in the positions of considerable power and authority)?
You see, incompetence of the Government ends with the Government replacement by the voters. Politicians, in the end are accountable.
Incompetence of the permanent elite (senior civil servants and advisers in charge of steering the Minister response) continues as long as they remain in the positions of authority and then, beyond, into their handsomely rewarded retirement. The former aspect of the letter is stuff for historians, the latter is for us.