The ECB Responds

After a turbulent week, RTE’s This Week programme provides a useful stocktaking with Mark Gilbert (Bloomberg), Dan O’Brien and Brian Hayes.   (You can listen here; starts min 5:19).   Part of the background is a Sunday Times front-page story on the ECB’s reaction to Michael Noonan’s Washington statements (no web link).   The paper quotes an unnamed ECB source,

“In the meantime, we may have to come to the conclusion that it doesn’t really make sense for the ECB to keep putting €100 billion into Irish banks.   What we are doing is actually illegal, but we have being doing it because we want to help Ireland.  Maybe we might come to the conclusion that we should stop,” said the ECB source.

Given the vulnerability of the funding situation facing Irish banks, this reaction from the ECB to the Minister’s comments is unhelpful in the extreme, yet quite predictable. 

94 replies on “The ECB Responds”

If the ECB belonged to a single state, such a comment would cause them grave difficulty. However the ECB is, in effect, answerable to no one, and has become a major political player in its own right. Also, if the ECB wants to play tough…well then the Irish banks should plead bankruptcy, and decide not to repay the c €50bn ELA to the CBI…and the CBI should cancel that debt. With that injection of capital…replacing the withdrawn c €100bn from the ECB from market deposits, would be easy

I don’t get this with the independent central bank – it is independent from political interference, but it is not precluded from interfering in sovereign decisions.

The whole “you must save your banks” goes way beyond offerring advice. The “we’ll withdraw funding from your banks” is in to the stage of threats.

Are the ECB now a threat to the EU? Are they a rogue institution?

@ John

I would be extremely skeptical about the motivations of the Murdoch press. Past musings from The Sunday Times shows that they are phobically anti Euro and anti Europe. There is nothing they would like better than a collapse of the Eurozone and they don’t give a damn about Ireland.

@Desmond Brennan

“With that injection of capital…replacing the withdrawn c €100bn from the ECB from market deposits”

My weak understanding of the inner working of banks was that more capital does NOT reduce your liquidity reliance? This can only be done by deleveraging?

@ Hog

If I don’t pay my ESB bill I know I will be left in the dark. Are the ESB threatening me?

If Ireland does not play its part in supporting the Euro then of course we face the threat of having our current unlimited access to the currency removed.

@ All

When Michael Noonan calls Anglo/INBS a mere speculators’ warehouse he might fool the populace but the ECB and the markets have not forgotten that Ireland crudely changed its laws and simply removed all depositors from Anglo/INBS.

We have had this debate before but the main reason why banks can get cheap bond funding is because of the protection of being pari passu with depositors. If we default on Anglo/INBS seniors then the markets will be in no doubt that we have set aside that basic legal foundation for bank funding – we changed the rules when it suited us.

If you don’t pay your electricity bill, do the rest of your relatives face having their funding cut off? Or does your doctor refuse to treat you?

The ECB is not, as far as we know, a senior unsecured bond-holder in Anglo or INBS. It is not going unpaid by this action.

Sindo on the plans for ILPM . Does anyone in any of the major Irish financial companies have any credibility now ? Bank of Ireland with its Irish Banking whatever President 2008 must also look great to the foreigners.

“Speaking to the Sunday Independent, a senior investment banker said: “Irish Life won’t go to IPO. They won’t get anything like the valuation they are looking for that way. They are talking about a value of €1.7bn or so, they won’t get anything like that.” Simon Adamson, senior bank analyst with the British research firm Credit Sights, believes the sale of Irish Life and the completion of a successful rights issue at Bank of Ireland will “be very difficult to achieve — whether or not the Greek situation eases or deteriorates”.”

kudos once more to the ECB who show why the ordinary peoples of Europe are very removed from the EU project.

Now have the ECB threatening Financial destruction of a member state.

And still they wonder why the French, Dutch and Irish all voted no.

“The paper quotes an unnamed ECB source.”
Now who could that be? Sounds like LBS rhetoric but it is doubtful that even Lorenzo would be so foolish to issue such a threat.
In the midst of the Greek crisis it was foolish to go on Bloomberg and draw worldwide attention to our banks (or whats left of them).

Just look at what is happening …from the Telegraph
“Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system.”

Ireland is fighting this duel in the wrong manner.

We cannot begin to approach the sophisticated swordplay that these continentals project.
If we have any respect for ourselfs we just need to say No and call their bluff – they may decide to kill Ireland quickly now but we are dead men walking anyway.
Once you realise that you are doomed, that spark of despair will set you free.
This cowardice on our part will not be patched up by school text books in 100 years time – it will mark another sad chapter in our long journal of arse licking.

The recovery potential for the EZ states except Germany and its satellites is surely being further undermined by market realisation that they no longer have a central bank that prioritises their interests. Whatever the ‘periphery’s’ other self-inflicted problems who would lend to a country not backed by a its own central bank?

That is a very irresponsible statement from this unnamed source It would be a mistake to take this as an official position by the ECB. It’s ludicris to have a central bank that speaks with more than one and often conflicting voices.

This does however highlight a response to Vincent Browne’s question on thursday night’s show as to why we cannot default without the acceptance of the ECB.

Regarding “the vulnerability of the funding situation facing Irish banks” can anyone shed light on how they are managing to get funding at all? According to the Central Bank, the covered institutions had 168bn of interbank borrowing at end-December. What’s the story? Are some of these deposits tied in some way? I can’t believe there are that many suckers out there.

If Michael Noonan had not chosen the worst possible time to make empty threats the “unnamed ECB source” would not have had the occasion to act in an equally stupid fashion.

Dork of Cork,

Dont you know we call arse licking maturity in this state?

Overseas commentator if Noonan wasnt stupid then the ECB wouldnt be stupid?

What type of defence of the ECB is that?

Gavan – is it the bailout thats the illegaility is referred to.

BTW if he is referring to the ecb lending as illegal then its highly selective to challenge that as illegal while leaving the treaty defing bail outs standing.

But hey when you write the rules you can break them as you see fit

The only person speaking with authority and confidence in the last few weeks has been Declan Ganley (not a big fan of his). Call their bluff, F*** them at this stage. Issue a tender in the Wall St Journal to issue Irish Punts and see how they react. We have to stop rolling over and begging for an interest rate cut which is red herring anyway. We are reverting to our colonial mindset again, “Please sir”. Finally get that defecit down to ZERO and its one less problem.

What type of defence of the ECB is that?

I suggest calling it the Wassila Gambit, in honour of Sarah Palin, who frequently protests that she only gives daft answers because interviewers ask her trick questions.

@ Gavin

lending to insolvent institutions (ie most of the Irish banks) is the illegal act i assume they’re referring to.

Insane comment from the ECB source, if true.

We know this – but if the EZ is to get through this, the ECB needs to be heavily hedged in by due process and democratic scrutiny + the top 3 levels at ECB all need to be all fired.

This is utterly crazy. We, in Ireland, have been living with this since last November when they pointed the gun at us. And remember this is not “our” (e.g. Irish) fault or responsibility – these fools lent money against dodgy collateral in order to pay off private bank bondholders.

Time to call the bluff and just burn the Anglo/EBS bondholders. We’re breaking no contract, treaty or law in doing this…..

It is clear to everyone that the Irish Gov’t is going deeper into debt as each month passes. The ECB has enabled the Gov’t to continue attempting to spend its way out of debt. The candy shop on Kildare Street has continued to dole out the goodies with announcements every week that can only be attributed to anything but rational decision making.

Raiding the national pension reserve plan and throwing it in with the proceeds from the ECB to fritter away in the same irresponsible manner as the previous Gov’t is a little too third world for my taste.

Until the ECB turns off the tap there is not a hope in hell that the present Gov’t will stop the drift to Venezuela (without the oil) status.

The inability to bring the minimum wage into line with the EU norm, along with the glaring aberrations Medical, Legal, Dental and other overpriced Silos is indicative of a Gov’t that is paralysed. This would be fine if we were not tied to the track with the train bearing down.

@Gavin and Eoin
“Insane comment from the ECB source, if true.”
Absolutely. How many cajas or landesbanken would be in a similar position if they had to mark to market? Indeed, if banks weren’t able to hide so much as “hard to value”, how many of them would have been insolvent during the financial crisis?

The fact is that the Irish banks have been rendered solvent by, amongst other things, subordinate debt-exchange, promissory notes, letters of comfort, guaranteed bonds issued to themselves, government cash, NPRF cash, etc. etc. The Irish government has saved the banks as requested. Who said anything about saving all their creditors?

@Desmond Brennan

All the ECB liquidity funding is over-collateralized (with some buffer for potential asset value declines) so your hypothetical strategy of the Irish banks refusing to pay back the ELA loans leaves the banks with no liquidity and larger (not smaller) solvency problems. All their best assets are pledged as collateral to the ECB so they would only keep the dross!

“What we are doing is actually illegal, but we have being doing it because we want to help Ireland. Maybe we might come to the conclusion that we should stop,”

So is this the “influence” that “the people” brought to bear on the bailout negotiations last November?

Don’t we have any “sources” on the Irish side that might muse about the political legality of using public funds to bail out banks or possibly reach the conclusion that because we need a banking system and our banks are insolvent, we should print punts.

If the above was the “influence” then that was the ECB unsheathing the nuclear missiles which is not the done thing in international relations lest your opponent unsheath theirs and then we have the ECB pulling the plug, Ireland leaving the euro, euro area contagion which would be damaging at best and fatal to the currency union at worst.

So what “influence” did our negotiators counter this with?

Interesting from a former Greek minister courtesy of the Observer…

“”The gravity of the situation is lost on this administration and Friday’s cabinet reshuffle is ample proof of it,” the former national economy minister Stefanos Manos told the Observer.

“In the posts of finance minister and alternate finance minister,” Manos said, “Papandreou has appointed two populists who are opposed to the memorandum [outlining the reforms agreed by Greece in return for being bailed out] and the very measures they are asked to implement. He’s nuts.”


Too true.

Can’t quite see myself where sustainable jobs will materialise in agriculture, food and catering – ‘tourism’ they call it in Dublin – unless welfare rates especially for married men/women with families come down. Once four kids are entailed, welfare rates and semi-skilled or unskilled rates collide. The collapse of the Bubble revealed that the country is incapable of sustaining a high wage economy. The government in its undivined wisdom must have a singularly shrewd plan up its sleeve.

My own take on events is that the government has deluded itself into believing that the ‘cute hoor’ strategy of saying all the right guff while privately running up a bill in novenas praying for the Greeks to fail has been seen through.

When the Acropolis is finally raised to the ground, the fantasy thinking in official Ireland is that Noonan and the lads will step out of the bunker, proclaim how they kept faith with the Troika, unlike the feckless Greeks, and produce an even bigger set of nested alms bowls for refilling.

Some day very soon, the whole domestic mortgage default/arrears time-bomb will self-detonate – the roll of ‘I told you so’s’ will be deafening – but in the meantime official commentary directs its brillo pad hostility at the ECB and the EU. Apparently it is ok not to repay external bondholders because of their recklessness, but repaying the domestic banks every penny owed by borrowers is unconditionally expected. Consistency how are you.

Is it the case that the pillock banks and Croke pork have turned the state into the sovereign equivalent of some WAG in an abusive relationship?

And our glorious state media does its part in shoring up our tax base by declaring there is a water shortage in the country !!
The depths that this regime will go to court our masters in Brussels is mind boggling.
I suppose its a good analogy for our public finances – if there is a hole in the reservoir there is little point in going thirsty to increase its effeciency.

Its a transparent set up for water charges in this sopping country.
What can one say in the presence of such servitude.

Personally, I would like to see the ECB come to the conclusion that they should stop funding the Irish banks. It would give us the opportunity to convert senior bank debt and ELA to equity. By making any resulting default on sovereign debt and other commitments involuntary and effectively arranged by an international institution, it would clear us of the worst reputational damage associated with default.

I doubt the ECB would survive the consequences in its current form.

So go ahead, suckers. Make our day.

@john s
Irish bank’s find it hard to get liquidity on the market, as the market remains worried about solvency issues that could be caused by tail risk. €50bn would be more than adequate a buffer to cover the tail risk

@Gregory Connor
The ELA the CBI itself issued, was for collateral the ECB couldn’t touch. For example ‘self bonds’ issued under the ELG. It is _very_ poor quality collateral. The legal means the CBI issued the ELA under are murky, and they afford us the opportunity to monetize our debt.

I guess the issue some in Europe would have is noonans comments were a pure act of political theatre to Mark the 100 day in office thing. He clarified his remarks later by saying he will bring up it with the ecb in the autumn. Why did he make them this week?

@ All

It would be a pity to deprive blockers of the attached view of the practitioners of the dismal science.

The following extract has particular piquancy.

“Maybe here is what’s going on: economists have always enjoyed being regarded as sages imparting scientific wisdom to untutored civilians but their claim to be dispassionate dispensers of settled knowledge was always undermined by half the profession despising the other half almost as much as they despised non-economists. And though the global financial crisis suggested much of the economists’ advice was wrong, they disagree ever more virulently about which part.”

Under the new legal dispensation, the first question would be: what is the reliability of the unattributable quotation on which this thread is based? Given the paper in which it appeared, the answer would be close to none.

The second question would be: what is the relevance of the issue under the discussion in the broader context? The answer would also be close to none.

“what is the reliability of the unattributable quotation on which this thread is based?”

The Sunday Times has some credibility. The quote is consistent in style with the usual bluster that comes from individuals speaking openly on behalf of the ECB.

I’d say the chances it is accurate are a good bit more than 50-50.

@ Hogan & eoin Bond

Thanks, as ever, for the clarifying replies.

@ Jagdip and all

Yes, this is an interesting test case of of where ‘the people’ might be stepping into the light.

Rather than going unnamed source to unnamed source, I would like to see the government take it fairly straight – ask the ECB for public clarification that this is or is not the position, ask straight up if it is behaving illegally, ask that an internal investigation seeks out to discover whether the bank is the source of the deeply destabilising off the record remark.

Perhaps some enterprising journalist could ask these questions also.


“Paddy likes to know what the story is”

Perhaps Enda might enlighten us on what seems like a crucial element in our behaviour towards bank bondholders.

@ BeeCeeTee

Given the track record of the Murdoch press, and the manner in which the supposed remark is couched, I would attach zero credibility to it.

There are more players in this game than Ireland and unnamed sources in the ECB cf. article by Wolfgang Munchau just published.

Merkel is in serious trouble domestically and the political forces in Germany inviting Greece (and Ireland?) to shoot itself in the foot by defaulting – and exiting the euro – have not yet quit the field. The latest idea is to offer Greece the services of the Treuhand, the agency that oversaw the disposal of state assetsin the former East Germany.

@ BeeCeeTee

It seems that Merkel may be home and dry as she has been given the imprimatur of the German equivalent of the Daily Mail cf. this extract from the FT.

“Ms Merkel also seems to have escaped the wrath of one of the most ferocious critics of German participation in loans to debt-laden eurozone states: the mass circulation Bild newspaper.

Instead of denouncing the deal, the broadsheet ran a report under the headline: “What would happen if … Europe turned off the money taps for Greece?” The answer, it suggested, would be Greek bankruptcy, and “an uncontrollable domino effect” in other eurozone countries”.

@Desmond Brennan

You are correct that the Emergency Liquidity Assistance provided by the Irish Central Bank is backed by lower quality collateral then that provided by the European Central Bank. However, those loans via the ICB are backstopped by the Irish government. So that creates an additional level of losses on domestic bank ELA loan defaults before any losses hit the ECB balance sheet. Sorry IMHO but there is no reasonable chance of any value-added in your suggestion it is a non-runner.

@DOCM, attach whatever level of credibility to it you like. Many others will differ.

I admire your ability to present your opinion as authoritative, but I’m afraid I look past skill in communication.

@ BeeCeeTee

Thank you for the back-handed compliment. Let me put the matter in another way: do you – or anyone else on this blog – seriously believe that a representative of the ECB would admit, formally or informally, that it was acting illegally?

MN on unnamed sources…

“On newspaper reports about European Central Bank anger at his comments on burning bondholders, Mr Noonan said: ‘I never respond to unnamed sources. We’ve certainly had no direct contact at all which would suggest there was any veracity in that.’

Questioned if other EU Finance Ministers might be annoyed, he added: ‘All their concentration will be on Greece. In my interview in the US, I made it very clear – the bond issue is something Ireland would be taking up with the ECB and the IMF and the Community in the Autumn and that it was not a matter we would pursue immediately.”


Off the record, yes. The fact the ECB has lent to insolvent institutions is widely accepted – as is the PR requirement to bullsh!t in public to the effect that this has not happened.

When they complained about “addict banks” last Autumn they were effectively acknowledging that is what they had been doing, and was the reason why it was foolish for some to have taken that comment lightly.

Papandreou…the Bart Simpson defense….

“Papandreou said the original loan’s assumption that Greece would be able to borrow from the markets in 2012 was no longer valid, but insisted his Socialist government had done all it was required to, passing painful austerity measures and reducing the deficit as a percentage of GDP by 5 percent in 2010.

Instead, he blamed ratings agencies, tax havens, “derivatives speculators” and the media for allegedly spreading panic and discouraging potential investors.”…..from AP

The Sunday Times may just as well have reported that a reliable source inside the White House said that if Russia invaded Poland the US would nuke them.

We all know that is true just as we know it is true that the ECB will pull the plug if we don’t play ball.

Nobody of any substance inside the White House would say they would nuke Russia just as nobody of any substance in the ECB would admit to behaving illegally or threatening Ireland. Great to be able to quote “sources” who are stating the blooming obvious.

Great, a real point beyond “nudge, nudge, wink, wink, Murdoch press”.

As it happens, I believe that it is possible that an ECB source (not necessarily a “representative”) might say that. The tone set at the top of the organisation is to deliver a stream of threatening bluster, and there is good reason to think that the ECB might have advice that it is likely that its actions are illegal.

In that context, there is every possibility that someone, somewhere in the organisation would push the bluster just a little further than LBS and friends, particularly if they were inexperienced in dealing with the press, or maybe talking informally down the pub.

I do not quite get the thread about what collateral the ECB was given for the ELA and how this would affect the banks positions. Surely if the ECB cut off funding the banks collapse and then the ECB gets nothing. And if they come looking for it from the government they would be well within their rights to tell them to take a flying jump.
Maybe I am looking at this the wrong way. Explanation needed (very simple words please!)

@shaun byrne
Secured lending like repo or ELA (note the ELA is with the Irish central bank, not the ECB) is in the form of giving (actually selling for a fixed period) assets to the bank in return for money and getting them back (actually buying back at a lower price) the assets at the end of the period. The ECB (and the ICB) already ‘own’ the assets. Defaulting on them would involve not buying them back at the end of the agreed period.

@shaun byrne

I will give it a try.

Consider the accounts like there is just one domestic Irish bank and consider a simplified sketch-type picture of its balance sheet before the crisis, now, and after a (very hypothetical) strategic default on the ELA (which as I will explain makes no logical economic sense. No attempt to fill in the corect numbers it is just to make the point clear.

Before the liquidity crisis:


90 billion (market value not book value) risky assets such as business loans, high loan-to-value mortgages etc.

110 billion (market value not book value) less risky assets in particular relatively safe retail mortgages etc.


190 billion deposits

10 billion equity

Next a liquidity crisis erupts and there is a slow institutional bank run leading to a withdrawal of 100 billion of deposits, with no private resale market for the bank’s assets, not even the less risky assets. So the bank turns to the ECB which provides 100 billion in cash (to pay off the departing depositors) and gets a 100 billion liability and a claim on 110 billion (market value) of collateral against the good loans.


same as above except with a collateral claim on all the less risky assets


90 billion deposits

100 billion ELA loan

10 billion equity

Now suppose (this is ridiculous but it was not my idea) that the bank chooses a strategic default on the ELA funding. The bank loses the 100 billion liability from the ECB but also loses the 110 billion of less risky assets that it owned. Now it is insolvent, and has no access to any liquidity if anyone chooses to withdraw any deposits


90 billion (market value still?) risky assets


90 billion (unless called upon) deposits

0 equity

The ECB probably will not realize the full 110 billion for its collateral and might realize less than the 100 billion it is owed. But the bank’s strategic default turns out to be a really, really bad move!

@shaun byrne & hogan

For most practical purposes, it is as hogan explained. Although technically there is an additional complication: the vast majority of ECB repos are not truly repos but collateralized lending. The borrowing bank holds a collateral pool in a central security depository, and part of this collateral pool is marked as collateral for ECB liquidity. Ownership is transferred only when the borrower defaults.

There are two aspects to the self-motivated part of the ECB’s defensiveness / paranoia about acknowledgement of the possibility of default.

The first is relates to ceteris’s “market value”. If the ECB thinks that, being honest about it, the assigned market value for some of its repo agreements is actually significantly above real market value, then the ECB’s risk is not covered by the haircut applied to that market value. If there was a default on the repo and the ECB took a loss requiring Trichet to make a case to Bild that he was not incompetent and the re-cap should go ahead, then careers would go into reverse. That is very important to bureaucrats.

If you stretch your imagination to the point where you think the actual market value is much smaller than that assumed – then the calculation is different.

The ECB’s purchases of sovereign bonds in the secondary market have been a partial bailout of banks who have exited some of their periphery positions. The ECB has been the only real bid and consequently has overpaid. Default on sovs leads to ECB losses and re-cap. Here though it is less embarrassing since no politician can realistically claim to have not known that the ECB was taking the risk off the banks.

There is a big focus on any bail-in of private bondholders being voluntary. There is also a proposal to provide a mechanism for default on Eurozone bonds from 2013 onwards. However, the problem is coming to a head now.

It strikes me that it would be consistent with these positions and with the basis upon which Europe plans to go forward, to impose collective action clauses in all senior bank bonds and in all existing sovereign debt bonds.

A country or bank would not have to restructure if it did not want to, and its creditors would not have to agree if they did not want to.

I think that such a move would not necessarily be radical given the way things stand. The legal, technical and mechanical barriers to a market based resolution of these problems needs to be removed.

Bonds are governed by laws of a particular nation. If the laws of that nation change then the rules of the bond change.

All EU countries, the USA and any other relevant country whose law governs relevant bonds would need to agree to take part. Otherwise it would be seen as unilateral default. It may also cut across EU laws.

@Gregory Connor
Indeed, the Irish government had to issue a ‘letter of comfort’ to the CBI, as clearly the CBI is verging on insolvency. My proposal is to let the CBI go bust, thus making permanent the printed money. I very much doubt that the ‘letter of comfort’ ranks high on any legal seniority scale, and if I understand, the CBI ELA isn’t on the ECB balance sheet at all.

As such yes a €50bn default, a bank heist (immoral)…but it is something to counter the ECB with

It must be reassuring to have sufficient cash in the back pocket to be unaffected by recommendations that this that and the other bank be ‘allowed’ go bust. And sure why stop at the banks, why not burn up a few dozen credit unions?

This is a artificial debt crisis – there is a simple solution to this crisis , but alas the priesthood will have none of it.
Convert all credit deposits to Goverment money which will reside in the post office.
Give the mortgage paper to the bank bond holders in the ECB and elsewhere.

In this new cash only market for houses and other large purchase items all the mortgages will have to written down to lets say 10% of their oringinal value – the bondholders will have to take what they can get.
This would work if capital controls are put into place to prevent vultures buying property on the cheap with the backing of their credit facilitators.
Once subjects become citizens again we can easily fund sovergin debt from the mortgages not serviced.
Never going to happen however as this policey would expose the satanic madness of the post – fractional banking system.

The fact that efforts to prevent credit malinvestment has not been tackled suggests to me the rent seekers have absolute poltical and financial power


@ grumpy

‘Is it the case that the pillock banks and Croke pork have turned the state into the sovereign equivalent of some WAG in an abusive relationship?’

You are onto a core issue there, even though it”s a bit off thread. The trade unions have followed their supposed betters, the business and professional classes. The state is something to be used and abused.
As the saying goes, ‘it’s coming off a broad back’.

We have a carnival of vested interests, where all important matters are ‘resolved’ by horsetrading. End result, political apathy and decline in social capital. I was told recently that the national liver transplant programme is restricted for lack of donors. If that’s true, it’s a sad sign of the times.

From Wikipedia:

L. J. Hanifan’s 1916 article regarding local support for rural schools is one of the first occurrences of the term “social capital” in reference to social cohesion and personal investment in the community.[3] In defining the concept, Hanifan contrasts social capital with material goods by defining it as:

“I do not refer to real estate, or to personal property or to cold cash, but rather to that in life which tends to make these tangible substances count for most in the daily lives of people, namely, goodwill, fellowship, mutual sympathy and social intercourse among a group of individuals and families who make up a social unit… If he may come into contact with his neighbor, and they with other neighbors, there will be an accumulation of social capital, which may immediately satisfy his social needs and which may bear a social potentiality sufficient to the substantial improvement of living conditions in the whole community. The community as a whole will benefit by the cooperation of all its parts, while the individual will find in his associations the advantages of the help, the sympathy, and the fellowship of his neighbors (pp. 130-131).”

@desmond B

It was “formal comfort” and diligent research using Google revealed to my satisfaction, that to mean a pair of old fashioned shoes but probably incorporating spongy insoles.

Back on topic, it was interesting that the journalist from Reuters complained without a hint of irony, that if “you” buy a bond and find you are placed unexpectedly behind someone else “you” won’t be inclined to buy one again.

It seems that this guy could see that this might cause problems for future market funding of banks but was unable to see the implication for other situations – eg Ireland’s now pissed-off sovereign bond holders.

@ Dork

You are enough of a historian to know that all systems of absolute power eventually defeat themselves. The Stalinist secret police and the Spanish Inquisition collapsed because their own members began to realise that even they themselves (and their families, a truly terrifying thought) were not safe. The Terror consumes everyone, even those implementing it. The fate of Robespierre is the fate of all those who seek universal dominance.

The financial oligarchs may indeed choose to terrorise the rest of the population, but the victims will include many of their own kind. Crises are profitable, but they are unpredictable in their effects. I am not sure though that fractional banking, per se, is the problem, as it seems to me more to reside in the economic and financial illiteracy of society.

How much of our history curriculum was devoted to the Great Depression and Ponzi schemes ? Sure it could never happen here.

@Paul Q

actually I was thinking more of the ECB as the footballer and the banks and CP as the Ferrari and the big posh house.


Personally, I would like to see the ECB come to the conclusion that they should stop funding the Irish banks. It would give us the opportunity to convert senior bank debt and ELA to equity. By making any resulting default on sovereign debt and other commitments involuntary and effectively arranged by an international institution, it would clear us of the worst reputational damage associated with default.

I doubt the ECB would survive the consequences in its current form.

So go ahead, suckers. Make our day.

So go ahead, suckers. Make our day.
But: We should not wait:

Ireland’s response should be very simple.
We should cut off communication with this institution that has threeatened economic war on this State.
We should not wait for the ECB to pull the trigger.
This is a declaration of economic war on the State and should be treated as such.

“Who do I call if I want to speak to Europe?”

It’s not often I sympathise with Henry Kissinger.


Here you go again with this collateral nonsense.
This State has just been threatened with economic war by a a very powerful instutition, yet you seem to dwelling on the technicalities of a collateral matter.
Ireland should this week introduce emergency depositor preference leglislation, in view of the threat issued.
The way I see this now is very simple:
The ECB is in for 150 Billion:
Total bank bondholders 60 billion:

Pull out of this EZ mayhem straight away.
If the only way an EU organization can get its way, it by a full-on threat of destruction to a member State, then it is clear that the EZ is finished anyway. In fact there is every reason to believe that this threat is issued to provoke an Irish response.
The EZ and ECB is finished and the ECB is looking for a scapegoat.

The way I see it, they just got themselves a scapegoat. Cost €150 billion.

@ grumpy

Few people in Ireland even knew what the ECB was until our state got into deep doo doo, via the bank guarantee. As the redoubtable Michael H is always reminding us, charity (and housecleaning) begins at home.

I’m expecting a denial tomorrow. Such a naked threat from an unnamed official is unprecedented in my experience of European or international affairs. If the ECB doesn’t distance itself from such reckless unattributed threats it will lose credibility.

If such a threat was made by an ECB official, then I’d expect them to get the boot. A clear breach of their staff contract. No public organisation could tolerate such indiscretion.

Are the ECB now a threat to the EU? Are they a rogue institution?

So what if they are? The EU accepted such an outcome the moment it gave the ECB the total independence it enjoys.

If you accept the idea of an independent central bank, then you must accept the idea that the bank can do whatever it wants, up to and including sabotaging your economy. This is really a very fundamental point about independent central banks, and one which the ECB has demonstrated is a clear empirical fact.

I personally wouldn’t put this comment past the ECB. It’s entirely consistent with their behaviour so far. The Banking Putsch of the European Union is now in full swing.

Sure , I have heard Steve Keen suggest that even if private credit creation did not exist Goverment money creation would be corrupted and any how there seems to be a poor reference point in Finance to distinguish between malinvestment and productive investment.
Reform of common stock practises so that insiders cannot redirect money to themselves may be a viable option and enable people to use these instruments as a form of currency such as Gold performs today (no counterparty risk) where it has a real intrinsic value but is not recognized as a goverment medium of exchange.
He suggested that once stock trades on the secondary market it should have a finite time period – this would prevent manipulation to a large extent in a non debt instrument.
But debt is different to equity because of leverage – when the tech stock markets crashed 10 years ago – potential cash postions were wiped out , it was painful but not infinite.
This final debt explosion engineered to prevent recession is a different beast however as Leverage can be forever if not forgiven.

As for Stalin and the other lads – they did not go quietly into the good night.

@ Ger


You are takin the piss there?

“I’m expecting a denial tomorrow. Such a naked threat from an unnamed official is unprecedented in my experience of European or international affairs. If the ECB doesn’t distance itself from such reckless unattributed threats it will lose credibility.

If such a threat was made by an ECB official, then I’d expect them to get the boot. A clear breach of their staff contract. No public organisation could tolerate such indiscretion.”

Cause if you’re not I have a problem with your logic.

Come on Ger what’s the punchline to your joke?

“starts min 5:19″

@ 6:03 all we have from “Gavin” is pure shit propaganda.

42 seconds in and I am riveted.

@Joseph Ryan

“Here you go again with this collateral nonsense.”

Cool down a bit and take a deep breath, and you may notice that I was giving a technical answer to a technical question asked a couple of posts earlier.

But now that you invited me to comment on the broader issue, I do find it a bit comical how the lynch mob is getting all wound up over something attributed to an “unnamed ECB source”. Maybe there is one, maybe there isn’t, but certainly it is not the institution that is speaking.

@ hoganmahew
“The whole “you must save your banks” goes way beyond offerring advice. The “we’ll withdraw funding from your banks” is in to the stage of threats.”

These are threats that have worked very well to date, for the ECB.

The policy of “you must save your banks” on the other hand has been a complete disaster.

By letting ‘failed banks fail,’ Florida’s banking’s survivors are lending again.
Fifty-one banks in Florida have been allowed to fail since the start of 2007.

There is currently lots of trash in the Irish banking system, that needs to be consigned to the dustbin of history if we are to have any hope of recovery.

We also need to expose the ‘elite’ who ruined the Irish banking system and destroyed the savings of a generation, because if we fail to do so many of these same people will infiltrate the system again with catastrophic consequences for the future.



I can’t get over the ECB going on record saying they are using ‘illegal’ methods of support for our unethical support of banks to the point of no return. One is as bad as the next, I guess two wrongs really do make a right after all…

David McWilliams
Prof Morgan Kelly
United Kingdom

June 21st, 2014

Dear Celebrity Economists,

You were right. We were spectatularly wrong. You saw the collapse coming and correctly predicted its consequences. We did not. You openly and vehemently opposed NAMA and the bank guarantee. We thought it was good policy. You saw whither it was all headed, whereas we were just to status quo to see beyond the political rhetoric which defines our careers.

We are sorry we mocked you. We are sorry we skillfully used our positions and prestige to shout status quo lies across the gullible and complicit airwaves of RTE and the pages of the Irish Times and the Indo.

Now that the default is over and we have reintegrated into the UK with a devauled punt linked to Sterling and the euro debt monetised away – just as you suggested – we see that our feeble attempts to keep the sinking ship afloat long enough for us to claim our state pensions was more than just irresponsible of us. It was downright craven.





@ All

two things:

1. Good Reuters article about the Sunday Times article


AIB didn’t pay out one of their coupons last week (as expected), so failure to pay should be a no brainer. Actually a somewhat “good” thing, as it makes for a less messy CDS settlement than the previous “credit restructuring event” would have been.

Desmond Brennan should read Bernard Connolly’s book “The Rotten Heart of Europe” in which he described the behaviour of the Bundesbank during the ERM days. He also explains that the ECB would only be acceptable to the Bundesbank if it were similarly free of political accountability.

Unaccountable rule is the way of the EU and the ECB, so if you want to be in these organisations it would be as well to understand the terms and comply with them.

@Humble student, DOCM

“The impact of credit-default swaps, which led to the near- collapse of American International Group Inc. in 2008, may be limited in a Greek default. Credit-default swaps on Greek sovereign debt cover a net notional $5 billion, according to the Depository Trust & Clearing Corp., which runs a central registry that captures most trades. That’s only 1 percent of the government’s $482 billion of bonds and loans outstanding, according to data compiled by Bloomberg.”

@ All


(BN) Juncker Sees No ESM Preferred Status for 3 States in Programs

The Concluding Statement of the annual IMF Mission on Euro-Area Policies is now available at

It includes the following rebuttal to Draghi’s misgivings last week:

“Many banks still rely heavily on European Central Bank (ECB) financing, and market access might not be immediate even after a recapitalization. A conditional term funding facility for private illiquid assets, possibly operated by the ECB but with the explicit backing of euro area sovereigns (e.g., via the EFSF), would smooth the transition, while protecting the ECB’s independence and flexibility and reinforcing the incentives to tackle the banking problems at their root.”

Mr. Draghi, please?

Will the ECB directly lose money if Noonan burns Anglo and INBS snrs? Seems very much like the Irish taxpayer is being stiffed with the price for (arguable) EZ stability.


Rather surprising claims from the Guardian Blog:

“The change will mean that private sector banks who lend to the new fund will no longer be forced into burden-sharing if a recipient of a bailout gets into difficulty.”


@ All

Attached link to Eurogroup statement.

The key word, it seems to me is “informal” and, outside the context of the statement, the involvement of the EFSF. The kite flown by Schaeuble about part of the Greek aid package being in the form of EFSF bonds transferred to Greek banks and being used by them as collateral for liquidity funding by the ECB was shot down by a finance ministry spokesman in Handelsblatt. Such behavour is, however, part of a pattern and it seems to me that efforts are being made to find some form of unassailable method of voluntary PSI, the shape of which has not yet been decided.

The agreement on the ESM, and especially the abandonment of senior status, is a major breakthrough. The final text, which must undoubtedly be officially released shortly, will show what other concessions to market realities have been made.

@ Grumpy

eh, they have that pretty much backwards, and a bit arseways on top! If you lend to the ESM you’re now more likely to take part in burden sharing, while if you lend/lent to the sovereign directly, then you’re in far better shape right now in that the burden sharing will be much more shared around now. But, as i said above, its a very important change, and as DOCM notes, it is a major breakthrough. Maybe the EU is finally starting to come up with sensible, workable solutions.

For those of you who read Alphaville, they’ve noted repeatedly over the last few months that it essentially created a CDO-style tranched-structure to EZ sovereign debt, if the ESM had had preferred status, and it was cited on numerous occasions as a reason why the credit ratings agencies had turned so negative on peripheral debt this year. There’d be a two (or three) tiered market for EZ sovereign debt should it have retained seniorty over private investors, and this has scared off completely any potential buyers of Irish debt in recent months.

This doesn’t all of a sudden solve our debt problems, but it does at least level the playing field for potential investors should we return to the market in ’12 or ’13.

I can’t see the good news in this from Ireland’s point of view. If the ESM had preferential status it would mean much more scope for a reduced interest rate. We appeared to be getting away with a fast one by being able to push existing creditors down the queue. Naturally, the EU are not happy with that state of affairs as it would delay a return to the markets. Do we care if we never return to the markets?

Re BW II point, if you were an Asian SWF would you lend at the current prevailing rates to the ESM if it did not rank superior to the dodgy credit. Will this result in higher rates for the indigent periphs.

Bundesbank expects high spreads for euro peripheral countries to stay

‘In its monthly report, the Bundesbank analyses the spreads in government bonds from the euro peripheral countries Greece, Ireland and Portugal and to a lesser extend also on bonds from Spain and Italy, Financial Times Deutschland writes.

The German central bank concludes that the spreads will stay at “a higher level” than at the beginning of monetary union even if those countries implement all the reforms that the EU and the IMF is asking them to implement.

This would make it much more difficult and costly for those countries to return to the markets and refinance themselves. But the Bundesbank thinks this is “appropriate” because risks had been priced to low in the past and market participants have sharpened their risk awareness since’

Eurointelligence Daily Briefing

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