Time for a Deal on ELA

Whatever happens, there’s going to be a lot of Euro summitry in the coming months. It seems clear that Germany is pushing for a swift Treaty change to introduce all sorts of legal limits on debt and deficits as the solution to the debt crisis. (You could argue it’s a bit like a flood defense plan that relies on banning rain.) In return for this, the ECB will agree to provide funds to bail out Italy and others, perhaps via turning EFSF into a bank.

Personally, I still think the economics and politics of the “Debt Treaty” approach are terrible. But it’s probably going to happen.

Given that, what should Ireland’s government do? Most likely, with the EU threatening to pull fiscal and bank funding if they don’t co-operate, our leaders will just agree to sign the dotted line at the relevant EU Council meeting and then see if they can get away with not having a referendum. (Unlikely — an Irish referendum will be one of many banana skins the process could encounter).

So here’s one thing that I think they can do. If the ECB is going to move into uncharted territory, then it’s time to ask for a small favour that will barely register as relevant when compared with a huge sovereign bond purchase scheme: Delaying repayment of the IBRC’s ELA debts. While unimportant in the European scheme of things, it would give Enda Kenny a big political win if he could announce the cancellation of the €3.1 billion March 31 promissory note payment.

If you want to read more about this, here‘s a column I’ve written for Business and Finance.

60 thoughts on “Time for a Deal on ELA”

  1. @Karl Whelan

    BRC’s principal assets are what is known as “promissory notes” from the Minister for Finance. These notes promise to provide Anglo with €3.1 billion on March 31 every year up to 2023 and then an additional €7.6 billion in payments up to 2031.

    Are you serious. So it not ~35 billion. It is
    3.1 billion for 13 years = 40.3 billion plus
    7.6 billion for 8 years = 60.8 billion.
    Total = 101.1 billion.

    What kind of rip off is this? Who doe the profit interest go to?

    PS Excellent Business and Finance article. But the above numbers cannot be right? Are they?

  2. @all

    The Bushmen of the Kalahari have a saying that is garnered from eons of experience in a tough environment:

    When faced with a Hungry Rogue Lion it is insufficient to stand still and simply wiggle one’s toes on dotted lines in the predetermined sand, and fatal to attempt to run away: to stand any chance of survival, one shouts and roars as louldly as possible, runs directly at the rogue, and tosses a few handfulls of rough sand directly into the eyes of the rogue. Options may appear – and all are preferable to becoming the breakfast of the rogue.

    Any Bushmen or San in the Oireachtas? Is this even an open question?

  3. @Karl Whelan

    Sorry. My mistake.
    Thanks for that and the link.

    It is still ~€48 billion in total repayments. So we are are not taking just one for the team. We are to be pummelled year after year until 2023 to pay for a dead banks.

    And these people will want us to give them more powers?
    I would go back to the commonwealth or take the oath of allegiance to the Queen before I would give the people who imposed this on us one more red cent.

  4. @ Karl

    as i have repeatedly suggested, get your coat and head up to Roebuck Castle and see what the boffins there think – suggestions that Germany is looking to use Protocol 14 (and maybe 12) of the Lisbon Treaty as a way of getting around a full on ‘treaty change’. This would therefore not require a referendum in Ireland, and may not even require a vote in the Dáil, apparently, just a ‘head of state agreement’. I still believe, however, that domestic political pressure would be heaped on Kenny & Co to either hold a referendum here, or be able to show some sort of giant-novelty-cheque from the ECB aloft to the tune of 10bn+.

  5. I think we should be looking to reduce the capital repayments rather than reducing the interest amounts or extending the payment period. Since most of the interest is paid back to the state anyway thorugh the Central Bank of Ireland, it is ultimately the €31bn of principal we need to focus on, not the €17bn of interest.

    I think the suggestion from Michael Noonan a few weeks ago was that a beefed up EFSF could inject capital into Eurozone banks and that some of this could go to the IBRC to reduce Ireland’s liability.

    If that were promised, I think it would represent quite an attractive carrot for the Irish electorate.

  6. @ Joseph

    all that 48bn goes into Anglo remember. So we get it back eventually. The problem is that we don’t get it back until Anglo is finally dead and buried in the ground. A bit like relying on your great aunt’s inheritance when she finally passes on in 25 years time. Not much use to you now.

  7. Also imo Ireland’s debt is likely unsustainable…debt to GDP ratio comparator not so helpful as GDP contains ‘pass thru’ MNC stuff. If you adjust our GDP for that, our peak ratio will be order 150% … that’s a ‘can’t pay’ rather than ‘won’t pay’ scenario. Also it’s not like there’s capacity in the real economy, as private indebtedness iis high.

    Our opening position should be that we will not be repaying the ELA – that would in fact be a very orderly default, as no financial stability issue due to exposed banks/bondholders.

    From that opening position, then see what Merkel et al have to say. The very worst that could happen would be for us to be kicked outta the ECB, and thus lose Prof Honohan’s vote…which is irrelevant anyway. We’d still be able to use the Euro, and go to markets as needed for new sovereign debt.

  8. @ EB

    “all that 48bn goes into Anglo remember. So we get it back eventually.”

    What you mean is that we get back the part that doesn’t go to bondholders or to pay off principal or interest on ELA. So most of it is getting burned.

  9. I am sorry but I don’t want to be bought – its becoming pretty clear now that Europe is a City of London plaything perhaps since they chucked out De Gaulle or even perhaps since its inception.
    Its a disgusting spectacle really – full of bullshit embroidery
    From a Irish perspective its better to live under a clear chain of command from the city then live a lie wrapped up in this worse then useless euro nonsense.

    The fact that this is just different packaging can no longer disguise the fact we are getting another bag of cinders for Christmas.

  10. from the Merkel FT link from KW above

    Frank-Walter Steinmeier, leader of the Social Democratic party, noted that what had been a “small Greek debt crisis” had been allowed to blow up into a full-scale eurozone crisis; “We are not saving the Greeks or the Italians,” he said. “We are saving our (German) banks and ourselves and our jobs. That is what it is all about.” Pity they did not listen to Axel Weber a few years ago …

    Munchau said as much this morning on Bloomberg, and Simon Johnson dismissed IMF involvement [linked on previous Draghi thread] …

    Dr Merkel is still attempting to ‘finesse’ the Big Black Hole ….. and socialize all its losses on European serfs

    Fiscal Union;EuroBonds; Normal ECB; Centralized FinSys Regulation; Farewell to Gaullism; Democratic Oversight; Strong Commission; all no problem ….

    Now: can anyone name a country that has shouldered a BankingBust of 45-55% of GN(D)P – and prospered? Or – Is Ireland (and its serfs) to be eaten for breakfast by the financial system?

  11. Bit of Political Economic History – from the San to Aristotle and back again

    Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.

    Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by cancelling the debts and redistributing property or taking its usufruct for the state.

    Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans. As James Steuart explained in 1767, royal borrowings remained private affairs rather than truly public debts. For a sovereign’s debts to become binding upon the entire nation, elected representatives had to enact the taxes to pay their interest charges.

    By giving taxpayers this voice in government, the Dutch and British democracies provided creditors with much safer claims for payment than did kings and princes whose debts died with them. But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.

    This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past: to appropriate land and mineral resources, communal infrastructure and extract tribute. In response, democracies are demanding referendums over whether to pay creditors by selling off the public domain and raising taxes to impose unemployment, falling wages and economic depression. The alternative is to write down debts or even annul them, and to re-assert regulatory control over the financial sector.

    http://www.nakedcapitalism.com/2011/12/michael-hudson-debt-and-democracy-has-the-link-been-broken.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

  12. ”Given that, what should Ireland’s government do? Most likely, with the EU threatening to pull fiscal and bank funding if they don’t co-operate, our leaders will just agree to sign the dotted line at the relevant EU Council meeting and then see if they can get away with not having a referendum.”

    – Perhaps I’m contributing in the wrong forum, not having competence in economic matters, but there are deeply important issues to be considered in tandem with the financial ones, and which transcend them in importance.

    Like most nations in Europe, we have sleepwalked into the situation we find ourselves in today, and though we have at least been given some notional opportunities to determine our future via the Treaty referendums, it was never admitted what the purpose and implications of the Treaties really were.
    It came as a surprise to me years ago when European leaders openly admitted what our own politicians denied existed. The euro was sold as a convenience for holidaymakers, other referendums were blackmailed through on the basis of the accession of the eastern countries, and on spurious econimic grounds.
    Any suggestion that even a portion of sovereignty was being surrendered was vehemently denied, and when the details were pointed out that that indeed was contained in their provisions, the concerned voices were answered with ”Ah; sure they’re our friends, don’t be paranoid; nobody’s is trying to subvert our ultimate competence in these matters..’ etc.
    The very first (and even then, only partial) admission of the situation was as late as last year when Brian Lenihan managed to go as far as ”We have always pooled our sovereignty”.
    This is truly, indeed unbelievably remarkable.

    The current proposals are going even what the most concerned commentators would have thought credible – a centralised construct that will have a veto power in National budgetary decisions; and no matter how it is window-dressed to make it appear more benign that is exactly what it’s working function will be.
    As for recent remarks from Germany & France – they go beyond political rhetoric and are a clear statement of intent; the consolidation of Germany & France (as the sub-partner, one presumes), the ‘economic convergence’ of the two from Sarkozy – who notably felt no need to even pretend that other constituents were worthy of mention.
    Now there’s always been political realism – everybody knows that large portions of the world are going to largely capitulate to the USA, and latterly China has transcended the firing range of criticism in many repects.
    We all have been aware that despite the construction of an apparatus of equal representation in the Commission, etc., we would conform to the tune of the larger components or our little feadóg would be drowned out.
    But this is entirely different.
    It is a conscious will to cede absolutely & unashamedly to the core, who have assumed, quite openly, a dictatorial role.
    Vetoes are to be done away with, democratic representation will not be allowed impede decision making, democratic government has in fact been suspended already in Greece & Italy in an extreme expression of this last tenet.
    And nobody needs to be wearing a Ché t-shirt to see that it is not a cartoon Napoleon staddled by the Fuhrer at the core of it all, but the protection of capital privateers.
    The opportunites that are being presented for the overthrow of all our social and democratic protections are indeed endless.

    So, with the greatest of respect to the author of the post, I am hugely disappointed that a position of abnegation as suggested in:
    ”Given that, what should Ireland’s government do? Most likely, with the EU threatening to pull fiscal and bank funding if they don’t co-operate, our leaders will just agree to sign the dotted line at the relevant EU Council meeting and then see if they can get away with not having a referendum”… can be countenanced.
    This meeting is either a preamble to the conditions envisioned by the authors of the treaty – which Merkel today says are well underway already, or it is a de facto imposition of a kind of economic Martial Law in the interim. There is no reason to suspect that the only position Gilmore & Kenny are taking is one other than one of compliance, and the only tactical plans they are making is how they can lubricate it past the electorate.

    There are worse things than negative economic implications to be considered. Just as we, as biological entities cannot ignore or cease to attend to our physical needs, our respiration and metabolism, nor can we ignore our financial situation. But just as equally we cannot allow one physical function become our primary overriding concern, for an appetite that transcends the well-being of the whole becomes a tumour, nor can we sacrifice our self determination on the euro altar.
    Our economic functions are at the absolute & total service of our selves and our societies, and government moves to subvert this must be steadfastly resisited.

  13. By James G. Neuger
    Dec. 2 (Bloomberg) — A European proposal to channel
    central bank loans through the International Monetary Fund may
    deliver as much as 200 billion euros ($270 billion) to fight the
    debt crisis, two people familiar with the negotiations said.
    At a Nov. 29 meeting attended by European Central Bank
    President Mario Draghi, euro-area finance ministers gave the go-
    ahead for work on the plan, said the people, who declined to be
    named because the talks are at an early stage. The need for a
    new crisis-containment tool emerged as the effort to boost the
    440 billion-euro rescue fund to 1 trillion euros fell short.
    Under the proposal, national central banks would recycle
    funds through the IMF, potentially to underwrite precautionary
    lending programs for Italy or Spain, the two countries judged to
    be the most vulnerable now, the people said.

  14. backwards breaking newz

    IMF 100-200 billion from EU central banks to IMF to lend to EU …..

    ignoring Simon Johnson …

    Bond?

  15. @DOD

    This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past

    The possible empowerment of the IMF as suggested, it is the ultimate nightmare scenario in my book, but in line with my view of a coup d’état that J. Habermas seems to see the same way .

    Haliburton and others stood in line, ready to enter Iraq and cream it. The same is happening in Libya of course. Requirement for this to be successful were several thousand mega tons of bombardment, boots on the ground and regime change.

    This is no longer required for the european war theater, unfortunately, there are no leaders with Admirals qualities protecting the peoples interests, and the one word to watch out for concerning the IMF’ s future role is COLLATERAL.

  16. I would be very surprised if the members of the Economic War Cabinet (Messrs Kenny, Gilmore, Noonan & Howlin and their advisers and senior officials) haven’t factored the ELA (and Ireland’s CT rate) into their calculations as they develop their negotiating position prior to next week’s Council meeting. Indeed I would be surprised if soundings hadn’t been made already and, possibly, an outline deal arranged to allow Ireland avoid a referendum on whatever big deal is going to be agreed.

    Comment is probably superfluous at this stage – though I expect there will be no end of roaring and shouting when the fait accompli is announced.

  17. @Georg R

    Savvy serfs are already heading for the hills …. the coup d’état is almost complete – only positive at the mo is ‘almost’ …

  18. @Karl Whelan
    Absolutely. Not only does the funding for IBRC (and other national bad banks) need to be put on a long finger at low interest rates (as I have been arguing for some time, but it needs to be at low enough interest rates that there is a chance that the bad bank can resolve itself more cheaply. Never mind at ELA rates, I’d argue for long-term near-zero rates. In return, the ICB/ECB/whoever get to keep any profit 🙂

    There’s a second part to this, though. It is not enough just to fix the bad banks. The ESCB allowed liquidity slosh to bubble assets. Those assets have the best chance of being paid back if interest costs on the loans that back those assets are within reasonable levels of ECB target rates. The liduidity drought in Ireland (and it will spread to other places) means that is not the case. Capital flight was permitted, short-term market rates in Ireland bear no relation to the ECB’s desired cost of short-term liquidity. If not the ECB, then the ICB should step up to fill the liquidity short-fall. If this has to be unsecured, then so be it.

    Having allowed capital in, it cannot be allowed out without replacement.

    In addition, lending amounts have fallen to disastrous levels. The most credit worthy lenders in Ireland at the moment are German car companies. Again, this is not a situation that should be permitted to persist. Both lending targets and lending limits need to be applied to each NCB area to smooth lending through droughts and floods.

  19. @Paul
    Before a nation can go to war it must control its army…..and money – it follows that in this monetory war if a politican does not have any money power he is a expensive spare P$%k.
    Negotiating position what negotiating position ?
    Even if you think these are not Quisling like figures merely worried about their pensions & Bank accounts.
    To my mind the Irish “Elite” will do everything to avoid a referendum , of course.
    The Dorian Grey facade has come off this “European Project” though – it could get difficult if they cannot provide bread & circuses.
    I am beyond the disgust phase now – its just a wild fascination with the mechanics of corruption & High power which fascinate me these days.

    If I were a betting man I would consider putting money down on the destruction of the market state but these guys have ambition and such power – who really knows where this will end up.
    http://www.youtube.com/watch?v=gPtVNDvwGMo

  20. I fully support the efforts to delay repayment of promissory notes.

    But what odds is it for the next few years? It’s already accounted for under EU-IMF funding. They would still sit on our balance sheet and effect the debt/GDP metrics. Is the suggestion that we could use the €9.3 bn or so of EU/IMF money freed up over next three years to ease the deficit reduction measures?

  21. @Bond Eoin Bond

    “A bit like relying on your great aunt’s inheritance when she finally passes on in 25 years time. Not much use to you now.”

    Oh, I don’t know. If people are prepared to sell their grannies, I’m sure I know some people in the banking game who will work out a way for you to leverage your still alive and kicking great aunt. Would a €trillion do? We could create a fund… let’s call it the ‘Extended Family Survival Fund’.

  22. Excellent column and further good work by Karl on his ‘promissory’ note investigations.

    IBRC’s principal assets are what is known as “promissory notes” from the Minister for Finance. These notes promise to provide Anglo with €3.1 billion on March 31 every year up to 2023 and then an additional €7.6 billion in payments up to 2031. These notes currently account for 20 percentage points of GDP of our national debt and the interest payments on the notes will continue to be added to the debt in the coming years.

    I suspect Eurobonds, EFSF boosters, new ESM for the EMS were hoped to ease the burden of all this ELA or portions of it, by Merkozy is not for turning.

    The ECB should absorb these losses onto its balance sheet as a result of its fiscal mismanagement of our debt.

    The reckoning is with Italy and Spain the burden on the core is too great. It’s time for the great reckoning.

    In stormy waters its one thing to throw out a tow line to save a crippled ship; its quite another to have the storm take both the crippled ship and its rescuer down with it.

    I’m expecting to see some cutting of tow lines very soon!

  23. @bond

    From the ft;

    “Traders said the jump of overnight lending by the ECB highlighted the inability of virtually all eurozone banks, with the exception of the very strongest, to get funding from the markets.”

    Is it the case that large scale recapitalisation of eurozone banks would stop this funding crisis – in other words would markets be willing to lend to these guys if they were forced to raise a specific amount of capital (and thereby avoid deleveraging), or is it the case that forcing them to raise more capital (and thereby fund themselves with more equity and less debt) would have the effect of increasing their blended or total average funding cost so much that their cost of funding would then be higher than the average interest rate on their assets so that they would become loss making?

    These kind of things make me think about how much the banks have at stake here. If they are forced to fund themselves more by equity and less by debt (the price of which is artificially reduced by state guarantees) and, further, if the banks are right when they say that this equity will be expensive, then it seems to follow that the banks’ profit margins (particularly on existing loans) will be reduced and their profitability hammered. Small profits means small market cap and probably leads to lower wages and stuff for bankers.

  24. @DOD

    Off topic:

    As an artist, it triggers pictures, it often does, from Lord of the Rings. Today I was remembered of the final battle, and forgive me the analogy, but the brutal simplicity of the Uruk-hai came to my mind when I thought of “our” Over Lords in Brussels and the U.S. So I placed some “Uruk-hai drums” into a reverb that seems to be fitting the purpose.

    http://dl.dropbox.com/u/4914840/Uruk-hai.mp3

    Agree with you, the coup is almost finished, and the final battle will be swift. The people of our Nations, now considerably scared and confused by the engineered events of the past few years, which comes in very handy when the final proposal will be presented, as the one and only possible solution, of course….

    Best
    Georg

  25. A bit off topic but interesting…
    From Ambrose at the Telegraph..
    “By the way, I find the market exuberance since the Fed-BoJ-ECB-et al currency swap to be very odd. Spanish 10-year yields are down 100 basis points.
    “Yesterday’s coordinated central bank intervention was like the captain of a transatlantic flight coming on the intercom to tell us that, while three of the four engines have failed, the remaining one might get us to our destination,” said Steen Jakobsen from Saxo Bank.
    “The central banks are now the only source – or engine – of funding for banks. Yes, it means we now have even more guarantees of cheap money/liquidity in the system, but it’s still a scary, one-engine plane. The central bank liquidity or is the one engine, while the private market that used to be the other three engines, has seized up and stop functioning.”

    The new normal? or perhaps just a band aid.

  26. If we are going to sell our agreement, €3.1bn seems a relative pittance. Europe should at least cover the full cost of rescuing Anglo and INBS bondholders. Their systemic importance was, after all, only to the continental banking system – not ours.

  27. The softening up process to get us to accept whatever our betters have decided will begin with Enda Kenny’s state of the nation address. I’d say he is a bit peeved that his friend Frau Merkel stole a march on him, maybe even got the idea from him. Anyway Sarkozy got out there first so he can claim it was all his idea; could not let it be said that the Germans were giving orders to the French. Come with us they will say, we have the conch, we make the rules, accept them and we may let you be part of our club, if not you will to be left outside and maybe, in years to come, if you are good, we will let you join us. However first you must pay up what you owe and promise to keep paying otherwise we may penalize you by closing your ATMs. You may go bankrupt of course but not before you pay us.

    Morgan Kelly offered an alternative. Bring the government budget immediately into balance and disengage from the banks. The only politicians likely to do this are those that fought a 30 year war with the British and who know that there is no gain without pain. I don’t think that the Irish electorate are ready for them yet but it may be too late by the time we are.

  28. @Brian
    To bring the goverment debt into balance you would have to make all private debt null & void…….. so as to stabilize the money supply , thats credit deposits going the way of the Dodo.
    Fair enough I am in favour of that if credit deposits become Goverment money.
    But there is some rational capital forming credit such as Farm improvements etc etc ……..what do you do we with that stuff ? – which has been increasing since the housing bubble days if I am not mistaken.

  29. If we were given 31bn right now from money fairies….could we completely pay back these promissory notes right now without any additional costs?

    Or would bondholders cry foul that they are missing out on years of interest as well?

  30. A Canadian perspective of the Euro misfits.

    Monday, November 28, 2011Marshall Auerback on BNN: What’s Europe’s Next Step?
    Marshall Auerback discusses the latest in Euro woes and the possibility of it spreading beyond the Eurozone. In the first clip Marshall stresses the need for ECB intervention to calm the onset of a debt-deflation dynamic. In the second, he follows up on the likelihood that the crisis will spread to sovereign currency nations like the US, where he explains that insolvency is not a threat.

    http://watch.bnn.ca/#clip574795

    http://watch.bnn.ca/#clip574835

  31. So much for the euphoria….the flight to safety continues with Swiss 10 yr now 0.78% and Swedish 1.78% and Italian reversing course at 6.68%. And what’s with the euro …down to 1.3374 from 1.3520 earlier.

  32. @DOD

    I don’t understand why the Anglo recap of 29.3bn requires years of promissory note interest whilst the AIB/BOI recaps only seem to require the principle amounts.

    Was the money we paid to AIB/BOI not also to pay back “interest-bearing asstes” and as such shouldn’t we be liable for large yearly interest payments to those banks as well?

    Obviously just something I am missing here.

  33. “Within the Eurosystem, the standard procedure for these loans involves banks pledging some financial assets to their national central bank as “collateral” which can be kept by the central bank if the borrowing bank does not pay back. If this collateral still does not cover the amount loaned out, the losses incurred by the central bank are shared with all the other central banks in the Eurosystem.”

    Karl, I thought that there was a presumption the losses would be shared like that if the ECB itself was ever to make losses through LOLR lending, and that if it is a National Central Bank then the losses go to the Treasury of that State.

    Can you give us a source for this?

  34. We have to be careful about being too uppity. Look what Michel Platini has done to us in Euro 2012 over being such pests about the Thierry Henry goal.

  35. @ Grumpy

    “I thought that there was a presumption the losses would be shared like that if the ECB itself was ever to make losses through LOLR lending, and that if it is a National Central Bank then the losses go to the Treasury of that State.”

    The ECB doesn’t do open market operations. All lending to banks go through the NCBs.

    In relation to NCB losses, Article 32.4 of the statute
    http://www.ecb.int/ecb/legal/pdf/en_statute_2.pdf

    says

    “The Governing Council may decide that national central banks shall be indemnified against costs incurred in connection with the
    issue of banknotes or in exceptional circumstances for specific losses arising from monetary policy operations undertaken for the
    ESCB”

    When Lehman’s and others defaulted on NCB loans, they decided to invoke 32.4 to share any losses:
    http://www.ecb.int/press/pr/date/2009/html/pr090305_2.en.html

    And the annual reports of all the Eurosystem NCB’s cite 32.4 as meaning sharing of losses.

    But for ELA, there’s no loss sharing.

  36. Karl,

    The “if the ECB itself were ever to make losses through LOLR lending” wasn’t a suggestion they are currently doing OMOs.

    The presumption seems obvious in the context of this bit of speculation from Buiter – see below.

    Just so I haven’t missed anything new on this – it’s ‘as you were’ on ELA losses, ie liability to the Irish State?

    Buiter:

    “Ownership of many internationally active private
    financial institutions has by now become quite dispersed
    globally. The foreign parent bank may in turn
    have a significant share of its equity owned by institutions
    or individuals in the country where its subsidiary
    is domiciled. These are uncharted waters.
    Greater complications arise when euro area-domiciled
    and registered banks emerge that do not have a clear
    national identity, even from a purely legal perspective.
    The clearest example would be a bank incorporated
    solely under European Law.12 Such banks don’t exist as
    yet, but I have no doubt that they will.13 Indeed, many
    expects on regulation are of the opinion that because of
    the unique insolvency issues associated with banks and
    other highly leveraged financial institutions, and given
    the vast differences in national bankruptcy laws across
    the EU member states, large banking institutions and
    financial conglomerates should be incorporated as
    European companies and a specific EU-wide insolvency
    regime should apply to them (see e.g. Lastra (2007)). If
    and when we get EU-banks – banks incorporated solely
    under European Law, and registered in one or more
    euro area member states – which NCB will provide
    lender of last resort facilities for them and which
    national Treasury or Treasuries will pick up the tab for
    a bail-out either of the EU-banks themselves or of one
    or more NCBs that have suffered losses as a result of
    lender-of-last-resort actions in support of these EUbanks?
    It would seem natural that the ECB itself rather than
    one of the euro area NCBs would provide lender of last
    resort facilities for EU-banks. But who stands behind
    the ECB as recapitaliser of last resort? “

  37. @PR GUY

    re Portugal action on pension funds- Your link above:
    http://www.reuters.com/article/2011/12/02/portugal-pensions-idUSL5E7N22HK20111202

    Dec 2 (Reuters) – Portugal’s government has agreed with the country’s four biggest private banks to transfer 5.6 billion euros of their pension funds to the state, secretary of state for the central administration Helder Rosalino said on Friday.

    This development is a real eye opener.
    In effect the assets of the pension funds (or part thereof) of the Portuguese banks employees are being handed over to the State.

    If the same happened in Ireland the pension fund assets of the ELG banks would be appropriated to bridge the deficit. But one assumes that the obligation to pay the pensions would also transfer.

    Whether there is a sufficient surplus in the pension funds of the Portuguese banks needs to be asked. I suspect not.
    If the assets being taken over amount to most of the pension funds built up, then it is also probable that the Portuguese State would then take over the pension entitlements of the banks. If only a small % of the assets are being taken over then the Portuguese banks and employees are being shaken down and will have to replenish the funds themselves. All unclear.

    Something similar happened here with the university pension funds. As I understand it the State took the money and said we will pay your pension or provide funds to pay it.
    If I am not mistaken UCD was in surplus and Trinity seriously in deficit.
    In theory the State lost on the deal but got the immediate benefit of the pension fund assets.

    The Irish State would be very reluctant to do it but in the case of all except BOI, the banks are State owned, so in theory it would be no different from what happened with the university pension funds.

    It is a possibility and the amount involved would be very substantial. I would hazard a guess of about €10 billion. Most of which are currently invested abroad.

    Good spot. It will come on the agenda particularly if the bank unions keep pushing for big redundancy terms. In other times the battle could get ugly.

  38. @Karl Whelan / Grumpy

    re When Lehman’s and others defaulted on NCB loans, they decided to invoke 32.4 to share any losses:
    http://www.ecb.int/press/pr/date/2009/html/pr090305_2.en.html.

    Do we take that if some big French bank went bust tomorrow, the loss to the French Central bank would be shared (assuming that the lending was ‘approved’ the ECB under normal monetary policy operation.)

    So if Anglo had funds out to the ECB in Sept 2008 under normal monetary ops, then if Anglo had been been put into receivership, the losses would have been taken up by the ECB.

    But because it was not put into receivership and funds subsequently ‘had to’ be provided in cash/ prom notes outside of normal ECB policy ops, Ireland must pick up the tab?

    Sounds a little like a big insurance that uses the fine print to renege on the uberrimae fidei (utmost faith) of an insurance contract.

  39. @Joseph

    “Do we take that if some big French bank went bust tomorrow, the loss to the French Central bank would be shared (assuming that the lending was ‘approved’ the ECB under normal monetary policy operation.)”

    My understanding is French bank and overseas branches of that bank go to French Treasury. However if that French bank owned a subsidiary, say an Italian bank, then that subsidiary’s losses to the Italian CB would be a liability against the Italian Treasury.

    Don’t think Anglo was borrowing from any other NCBs.

  40. @Karl

    “with the EU threatening to pull fiscal and bank funding if they don’t co-operate,”

    I am not aware that the “EU is threatening to pull fiscal and bank funding” from Ireland or indeed has been given any reason to consider this.

    I accept there are some “vocal” personalities in a few states but the EU has 27 member states and approximately 190 politcal parties.

  41. @Joseph Ryan

    Yes, I thought that ‘taking over’ a pension fund meant you had liabilities as well as assets but (and it’s been very badly reported) I thought they had somehow put the assets on their books for this year and had moved the associated liabilities to next year?

    I also get the impression from the limited reporting that the Troika acknowledge that this might be a ‘fast one’ but as long as it’s a one-off then that’s OK. I find it all very strange.

  42. H’mmm no comments on the tax take shortfall (OK we underspent too as I understand it but could be a worrying sign of things to come), Portugal’s fast one on pension funds, Geithner’s European tour next week (he is clearly in a big flap and it’s interesting that his first meetings are with Draghi and Schauble before he meets any politicians), how just 120,000 jobs made 9% suddenly go down to 8.6% (seem to be a lot of temp Christmas jobs included in that?), the sudden fizzling out of the rise in NY markets last night at the close even after the jobs data, … happy weekend.

  43. Unconfirmed rumour from a usually unreliable source, that Lord Geithner, is simply trying to get his hands, on instructions from the tentacles, on a few tickets for the upcoming European Finals, and absolutely no truth whatsoever in the rumour that he is on an unofficial nixer to stitch up a somewhat vulnerable cds link to a tentacle.

  44. Global Debt Crisis

    The greatest private fraud of human history.
    Who are the great fraudsters who are becoming the murderers of the human kind? How does the economy “illness” threaten Democracy and the freedom of people?

    http://eamb-ydrohoos.blogspot.com/2012/01/global-debt-crisis.html
    ———————————
    By knowing what happened in indebted Greece, where loan sharks created “bubbles” and the current inhuman debt, one can understand the inhuman plan in total …understand where this plan started just to bring all states at the same end …understand how this type of plans are established…

    Authored by PANAGIOTIS TRAIANOU

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