Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Trichet was determined that Dublin should not use Merkel and Sarkozy’s announcement as cover to burn the banks’ bondholders. Instead, Ireland must accept a program like that imposed on Greece. And, as in Greece, with Irish banks wholly dependent for their day-to-day survival on ECB funding, Trichet had the whip hand.65 Dublin did not surrender without a fight. To find itself pushed into the financial emergency ward alongside Greece was a humiliating shock. So the ECB applied main force. On November 12 the ECB Governing Council threatened to withdraw support from the Irish banking system while leaking to the media that Ireland was about to apply for a bailout. On November 18 the Irish central bank chairman, Patrick Honohan, fresh from an ECB meeting in Frankfurt, contacted Irish broadcaster RTÉ to say that a national bailout was only days away.66 On November 19 Trichet spelled out to the Irish prime minister in a confidential letter the conditions under which the ECB would be willing to extend its assistance to the Irish banks.67 Dublin must immediately apply for aid and submit to the instructions of the troika. It must agree to an urgent program of further fiscal consolidation, structural reforms and financial sector reorganization. The banks must be fully recapitalized and the repayment of the ECB’s short-term financing for the Irish banking system must be fully guaranteed.