Government Ignored Warnings About Bank Guarantee

Documents have been published showing the advice given to the Irish government before its decision in September 2008 to introduce a controversial bank guarantee.

It shows the last written advice before the guarantee was announced recommended against it, and it reveals the government were unaware of the true scale of losses faced by the troubled banks at the time.

US advisers Merrill Lynch told the government that the guarantee "could be a mistake", would cost €500bn, and that the State could not afford to cover it if required.

A memo sent to the Department of Finance said that the guarantee "would almost certainly negatively impact the State's sovereign credit rating and raise issues as to its credibility".

"The wider market will be aware that Ireland could not afford to cover the full amount if required," it said.

Despite this warning, the government pushed ahead with the guarantee, on the mistaken belief that the banks had assets worth more than €500bn.

In reality, because of the property crash, the assets were worth much less.

However, Taoiseach Brian Cowen and Finance Minister Brian Lenihan have defended their decision to go with the blanket guarantee.

They point out that Merrill Lynch had set out a range of options for dealing with the crisis, and had said that there was "no right or wrong answers".

The blanket guarantee was described as "the best/most decisive/most impactful from market perspective".

And the political leaders also got bad information on the scale of losses at Anglo Irish Bank.

Documents show that the Secretary General of the Department of Finance warned of potential losses at Anglo Irish Bank of €8.5bn.

In the end, Anglo reported world record losses of €15bn last year.

The publication of the documents by the Dail's Public Accounts Committee has caused a political storm, with Fine Gael leader Enda Kenny accusing the government of deliberately and consistently deceiving the public.

"Their decision to give a blanket guarantee to Anglo Irish Bank and Irish Nationwide ignored clear warnings from professional advisers and senior civil servants to be cautious and was based on reasons that remain unclear to this day," he said.

One of the reasons why it's unclear, is that the published documents are not comprehensive.

They were heavily censored, and some were not published on the grounds of cabinet confidentiality.

They also don't contain any information on the crucial meeting at Government Buildings in the early hours of September 29th 2008, at which the decision was made to introduce the blanket guarantee.

There are surely more embarrassing revelations to come.