Trichet defends role in Irish bailout, says no other option

By Padraic Halpin

DUBLIN, April 30 (Reuters) - Ireland (Other OTC: IRLD - news) was in such a perilous position in 2010 that it had no choice but to seek an international aid programme, former European Central Bank head Jean-Claude Trichet said on Wednesday, defending his role in the bailout.

Trichet was speaking at a much-anticipated event, facilitated by a parliamentary inquiry into Ireland's banking crisis, where he was questioned on the pressure Frankfurt put on Ireland to take a bailout from the European Union and International Monetary Fund.

"The situation, which was extremely grave, was due to the underlying weakness of the Irish economy and financial system," Trichet said in a speech. "It left the government with no alternative than to ask for support."

Trichet's appearance follows the ECB's release last year of correspondence between the then ECB President and former finance minister Brian Lenihan when Trichet threatened to end emergency bank funding.

There has been much speculation about what light the "Trichet letters" could shed on the ECB's role in the run-up to Dublin's formal application for aid in late November 2010.

Trichet defended the ECB's reluctance to allow losses to be forced on senior bank bondholders - another controversial subject in Ireland - saying it remained his view that various factors made this extremely difficult for Ireland in 2010.

However he said that while the ECB gave its advice, "the decisions were taken, and that goes without saying, by the Irish authorities."

He said the next Irish government was right to decide against burning the remaining senior bondholders at failed banks a year later when it approached the ECB about doing so.

Referring to the government's 2008 blanket guarantee on all bank liabilities - a key focus of the banking inquiry - Trichet said he understood why such a decision was taken but that the ECB was not consulted.

Irish taxpayers had to stump up 64 billion euros ($72 billion) - equivalent to almost 40 percent of annual economic output - to rescue the banks after the spectacular bursting of a property bubble wrecked the economy and banking sector.

Since completing its bailout 18 months ago, Ireland's economy has become the fastest growing in the European Union and its recovering banks have returned to profit, a rebound Trichet said was the major success of Europe's crisis. ($1 = 0.8931 euros) (Editing by Ruth Pitchford)