U.S. Treasury Secretary Timothy Geithner was petrified that the now-defunct Anglo Irish Bank would default on its financial obligations and create a massive new recession.

He and European officials looked at the bank’s problems as “the most serious global banking issue” since the collapse of Lehman Brothers in 2008 according to The Irish Times.

Geitner urged the European Union to flex its muscle during a G20 summit meeting in Seoul, South Korea on November 11, 2010, 10 days before the Irish government applied for financial aid from the EU and the International Monetary Fund.

Geithner was well aware of the mounting Irish crisis, particularly as it related to Anglo Irish Bank’s difficulties.

European officials feared the Irish government wasn’t taking the growing problem seriously enough, with many of them looking at Anglo Irish as the next Lehman Brothers.

Geithner urged Europe to exert control over the Irish crisis during a meeting with the finance ministers of the G7 nations – the U.S., Germany, France, Britain, Canada, Japan and Italy – during the G20 summit in Seoul a year ago.

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The stunning downfall of Anglo Irish Bank, and the EU-IMF Irish bailout that followed, had been predicted by European authorities as early as September of last year, according to a new account of the Irish financial crisis in today’s Irish Times.

The paper reported that Irish finance officials were fearful of the country’s balance books during the early part of September 2010, as borrowing costs were rapidly reaching dangerous levels.

The Irish minister for finance at the time, Brian Lenihan, who passed away earlier this year from pancreatic cancer, was informed of the situation by
officials at the Irish Department of Finance and the Irish Central Bank. 

Together with the EU economic commissioner Olli Rehn, Lenihan agreed to liaise with the IMF about Ireland’s finances.

“I would say that latest, from mid-September in my thinking, the probability of Ireland avoiding a rescue package was very small,” said Rehn, according to the new account of the pre-bailout drama published in the Times.

At the time, the Irish government, led by Prime Minister Brian Cowen, denied that Ireland would need IMF help with its finances, though the truth was finally revealed on November 21 of last year when Ireland made its formal application for a bailout.

The public government denial is in stark contrast to what was going on behind the scenes.  Officials from both the IMF and the European Central Bank were sure that Ireland would not be able to wade through its dire financial straits without help, and Lenihan reached out to the IMF for guidance during the weekend of November 6.

After Geithner expressed his concerns, Rehn contacted Lenihan, and eventually Cowen was told that a rescue would be needed.

The Irish government continued to deny that such a package was in the offing, however, even though international pressure was mounting and world markets were at risk of losing value because of the Irish crisis.

Geithner got involved again during a G7 teleconference on November 11, saying that senior bondholders in Irish banks couldn’t be held accountable for their losses. At that point the IMF, which until that time wanted the bondholders to accept the losses, agreed the bondholders would be compensated.

The Times reports that although Irish officials wanted the bondholders to absorb some of the losses, the European Central Bank vetoed this idea so it never came to pass.