Today the European Commission announced that they are allowing the government’s new guarantee scheme, the Eligible Liability Guarantee, to be extended from including securities issued before June 1 (i.e. tomorrow) to securities issued up to the end of June.
Now the fact that the Commission had only allowed the scheme to cover bonds issued before June 1 seems pretty clear from this press release announcing its original approval on November 20 last year. It says “The instruments guaranteed under the scheme may be issued from 1 December 2009 until 1 June 2010.”
I have to admit that until now I had thought the ELG scheme covered securities issued up to the end of September. For instance, here’s the Department of Finance’s press release welcoming the November 20 decision from the Commission. It describes the new guarantee as follows: “It will apply to certain liabilities (including deposits) incurred by participating institutions during the period up to 29 September 2010.”
And here’s an FAQ about the scheme issued after it came into operation in December. It also mentions 29 September 2010 as the date up to which securities could be issued and covered by the scheme. On the face of it, this seems at odds with the European Commission’s statement about the scheme. It is possible that this statement from the FAQ reconciles the apparent contradiction:
The ELG Scheme is therefore scheduled for review by the European Commission in June 2010 and the references to 29 September 2010 below must therefore be read in that context.
But strictly speaking, this doesn’t seem enough to fully reconcile the two sets of statements. Realistically, it seems to me that the correct interpretation of the scheme was that it applied to debt issued up to June 1, at which point the Commission could assess the scheme and potentially extend it. (Of course, we’re into angels-on-pins legalistic territory here and there may be some complex sense in which government and Commission statements on the scheme were, in fact, consistent.)
In any case, it certainly seems as though September 29 is the government’s preferred end-date for the ELG. In that sense, today’s one month extension may be a disappointment to them. Perhaps there’s another extension coming next month. It will also be interesting to see if any debt securities get issued under the scheme during this month.
12 replies on “European Commission Extends ELG Scheme”
eh, this is seriously confusing. From the NTMA website.
“About the Scheme
The Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (the “ELG Scheme”) is made pursuant to Section 6(4) of the Credit Institutions (Financial Support) Act 2008 and came into effect on 9 December 2009. The ELG Scheme provides for an unconditional and irrevocable State guarantee for certain eligible liabilities (including deposits) of up to five (5) years in maturity incurred by participating institutions during the period from the commencement date of the ELG Scheme (9 December 2009) to 29 September 2010 (subject to six month review and approval under EU State aid rules) on certain terms and conditions”
And from the actual legislation itself…
“12.1 An eligible liability:
(a) shall not have a maturity in excess of five (5) years; and
(b) must be incurred between the period from the commencement
date to and including 29 September 2010, subject to the
approval of the EU Commission at six (6) monthly intervals,
pursuant to paragraph 5 above. The Minister may amend the
issuance period by order under section 6(3B) of the Act and in
order to ensure compliance with EU State aid requirements.”
Basically, if the scheme had not been extended today, the ELG would’ve lapsed for the purposes of new liabilities taken on by the banks as of tomorrow? At no stage have i seen or heard this anywhere. Bizarre.
“… subject to the approval of the EU Commission at six (6) monthly intervals …”
Coincidence that the Anglo-Irish ‘recovery’ (sic) plan sent to the Commission today? Ray of hope perhaps that the Commission sees what the Irish Executive is incapable of seeing (or speaking) as we sink deeper and deeper into the debts of the north Atlantic Ocean ….. or perhaps it was that €2 billion today wot did it?
Any chance the Commission might toss in a Hiberno Bank RESOLUTION as well ……….. JHC …… do we need one yesterday – and not before Sept 2010 …….. who knows what tomorrow may bring?
Or maybe during preparations for the 6 month review (Due on the 9th of June??) the government were told that the commission wasn’t going to agree to an extension beyond a few weeks.
the policy of kicking the can down the road is always fine, until one runs out of road….
The ECB has been talking about withdrawing/reducing liquidity operations for a while now – see this (old) chart http://ftalphaville.ft.com/blog/2009/12/11/88546/ecb-liquidity-cliff-risk/
If their tactics are still the same, then it would seem unlikely that they would be willing to extend the ELG much beyond the lifetime of their other liquidity operations.
It could be argued that an Irish government guarantee is a different beast to liquidity operations, but (as I see it), the only reason the Irish state guarantee is worth anything is because of the implicit guarantee the Irish state has from the EU. (like greece Greece, unlike Iceland)
The use of the word “certain” means not all items within that category, i.e., read the small print.
From yesterday’s FT:
“The European Central Bank could start a gradual exit from its ultra-loose monetary policies as soon as July, according to a senior policymaker”
@Brian Lucey – “the policy of kicking the can down the road is always fine, until one runs out of road….”
Or the can is too big and heavy to kick any more because it’s full of worms!!
“Or the can is too big and heavy to kick any more because it’s full of worms!!”
That probably helps to explain the deadline the EU chose when the guarantee was first introduced; presumably the middle of this year was meant to be a major milestone in the return to normality. But things have turned out otherwise. And for as long as the ECB board is still fighting over purchases you can be sure that the repos are ongoing.
This extract from the Department of Finance website would indicate that the 1 month extension is for technical reasons to bring it line with other guarantee schemes and allow the formal review to take place. My guess is that it will then be extended to Sep 29, and Brian lenihan has hinted that he thinks it will need to be extended even longer.
“The ELG Scheme was approved by the EU Commission under state aid rules from 1 December 2009. The Scheme, in line with all schemes approved under state aid rules, is subject to ongoing six monthly approval by the European Commission. The Scheme was scheduled for review by the European Commission before 1 June 2010 and in order to bring the review date in line with other European guarantee schemes, the Commission have approved the continuation of the Scheme under existing terms to end June and that the formal review of the Scheme by the Commission will now be completed prior to 30 June 2010.”
Could we not invent some new institution called the final bank of the ECB or FECB for short and get all the euro leaders to solemnly promise 10 trillion euro to the FECB in the event of the ECB running into trouble. The FECB would probably need only one small office and a fax machine and wouldn’t cost much. In this way we could probably buy ourselves another six months.
Fantastic idea. Maybe we could set it up in a port-a-cabin on the old glass bottle site.