Nobody is denying that the bank guarantee, and particularly its extension to bondholders, was a mistake,and the only question is why that decision was taken. The Dail is in the procress of setting up an enquiry into this, although that is likely to be an exercise of the current Government parties seeking to blame the previous Government for everything that has happened since.

There were extensive consultations with the ECB at the time,and perhaps the truth of what transpired will soon come out. However what is indisputable is that the ECB subsequently insisted that the guarantee be extended even to banks such as Anglo Irish which were not covered by the Government guarantee, and that the ECB was vehemently opposed to any bondholders being burned - as repeatedly proposed by the Irish Government and opposition parties.

The threat the ECB used was to withdraw all liquidity support from the mainstream Irish banks which would have led to an immediate implosion of the Irish Banking system as they owed the ECB 100's of Billions at various stages. The fact that, even now, the ECB refuses to allow failed banks be liquidated and is applying a similar policy in Spain indicates that what the Irish Government did was fully in line with ECB policy both then and now.

Indeed the ECB has consistently insisted on a much broader bail-out of banks and their bondholders than ever advocated by any Irish Government, party, or indeed the IMF. So you can blame the Irish Government for caving in to ECB pressure in 2008 if you like - I certainly did. But the bigger issue is the lack of a rational bank regulation and resolution process within the single market as a whole, and for you to try to exonerate the ECB and the EU more generally for this lack of a Eurozone wide supervision, regulation, and resolution process is to me the bigger cop-out.

Index of Frank's Diaries