Whelan: Time for a deal with Super Mario

As I understand it the total capital value of the Promissory Note of approx €35 billion, being the Anglo and INBS loss foisted on the nation, is being extracted from the Irish taxpayer and paid back into the Euro system.
It is then burnt. All €35billion of it.

I am not clear why the ECB want to extract money from Ireland and then burn it. But that is what they are doing.
Perhaps we should be grateful.

In 71BC the Romans decided to crucify 6000 defeated slaves of the Spartacus rebellion along the Via Appia.
Burning euros extracted from Irish taxpayers is a step forward from Roman times, I suppose.

Yeah, extraordinary to hear Noonan blather about some technical discussions on the possibility of some ELA/promissory relief….This should be in the Fiscal Compact…blog about it here:

http://colmbrazel.wordpress.com/

Should have been done years ago. Who is foolin who? I’ve written out a version see below of Irish amendment to the Compact…….our shambolic leadership are merely bailiffs and debt collectors….

Here’s the piece:

“http://www.openeurope.org.uk/research/100112fiscalpactdraft.pdf

I think there’s a piece missing from my version of the draft. It should come after the following in the draft.

TITLE VI GENERAL AND FINAL PROVISIONS Article 14

Should there not be also:

TITLE VII

AMENDMENTS AND BURDEN SHARING

1. This Treaty shall be ratified by the Contracting Parties in accordance with their respective legal requirements. It will include a burden sharing structured agreement between contracting parties, the ECB and government of Ireland. A sum of ¢34 bn through ELA and promissory repayment mechanisms will be set to null and void. Instead this debt will be collateralised through the EFSF and later through the ESM to ensure the citizens of Ireland are not held legally responsible for the debt of Anglo and associated banks.

2. This Treaty shall further include clauses and amendments to be agreed as part of an overall restructuring agreement for Ireland’s debt based on ability to repay. These clauses and agreements on burden sharing will be put to the Irish people in a referendum; the support for these amendments and clauses requiring possible further burden sharing will include a decision to leave the euro currency if such conditionality is not accepted and such burden sharing losses are not to be freely accepted by all parties to the agreement.

——————

Wonder why the above is not in your copy of the Fiscal Compact? 🙂 Where’s Honahan , Cardiff et al…The Sleepers

A deficit of 6% this year sounds much nicer than 6.1%!

This point needs to be made in the mainstream media if it really gives the Government a ‘legitimate’ method of easing the burden.

Karl on VB tonight.

Very disappointed with VB’s proportional attention to catching out Brendan Howlin’s wording on the use of the proceeds of semi-state assets.

Does he not realise that the 3.1bn saving in this year regarding the promissory notes is worth far, far more than any likely sale of assets which could take years.

Why has the current government chosen to endorse the “economic war crimes” that is the previous government’s bank guarantee pledge?

Why, why, why? And today we are told that emigration is a “lifestyle” choice?

Shame on the current goverment.

Just refuse to pay on the notes.

Let the Irish Central Bank be seen for what it is.

Bankrupt.

Forgive me for intruding, and I’m not unsympathetic, but I have taken an interest in these issues and came across Perry Mehrling’s posts at INET where you have also been invited to speak. Mehrling uses an approach that allows non experts like me to understand the issues. Upon whose balance sheet will the losses appear?

All well and good to say Ireland should not have to pay this that or the other thing but someone will or absorb the loss. Easy to say ‘the banks’ but that means depositors, lenders and, ultimately taxpayers in other countries.

I’ve read enough of this MMT crap to realize that there are some who believe you can just have a Central Bank excrete ‘money’ and cover all the losses but I’m skeptical. I can’t believe no one was smart enough to have thought of that before. Is there any empirical evidence that it will work because it sure sounds like a solution. If not, I’m back to my first point, who absorbs the losses?

@scottinflorida

I’ve read enough of this MMT crap to realize that there are some who believe you can just have a Central Bank excrete ‘money’ and cover all the losses but I’m skeptical.

The ECB already excreted money from the euro system when it gave out cash to Anglo so that Anglo could pay off its favourite bondholders. [It did so by discounting the Irish government promissory (PN) notes given (under duress) by the Irish government to Anglo.

So the ECB had no problem with Quantitative Easing (QE) so long as that
QE was used to pay off bank bondholders.
But the ECB wants its QE back. It wants the QE back from Irish taxpayers.
There are no losses anymore.
There should have been losses. Either:
1. The bondholders in a bust bank should not have been paid. The bank should have been sent down the capitalist queue, with the bondholders losing their money. Or
2. The ECB should have paid off the bondholders if it truly believed that the purpose of paying them was to ‘save the European banking system’. They did pony up the money for the Irish government to pay the bondholders by issuing the PN. Now they want the money back.

The whole matter could be resolved by the ECB changing the category of the PN money on its balance sheet from ‘Liquidity’ to ‘Our Sweet Bondies’.
It is that simple.

@ scottnflorida

‘I’ve read enough of this MMT crap …’

Maybe not 🙂

http://www.boeckler.de/pdf/v_2011_10_27_lavoie.pdf

I can understand the fixation of those with knowledge and competence in the area on the totally excessive and unnecessary burden that these promissory notes/repayment of ELA and ECB liquidity support are imposing. But surely is there not some perception that the political pressure on Government to secure some relief is overwhelming and that, presumably behind the scenes, it is straining every sinew to secure this?

It is rapidly getting to the point that, while this burden remains unrelieved, it will prove impossible for it to sustain the apparent sullen and resigned popular acceptance of continued fiscal adjustment. And it is clear that it has abandoned any serious progress on structural reform. It is being forced to fall back on grubby deals and the usual optical illusions.

The political pressure is also building on the senior EU politicians behind the Troika. They may not be paying much attention at the moment, but, on the basis that some version of this ‘fiscal compact’ will be agreed for ratification (in however many member-states sign up), they will find that, in Ireland’s case, and irrespective of whether or not a ratifying referendum will be required, a major concession will be required on this issue. It will obviously be dressed up as purely technical adjustment. Every effort will be made to project the optical illusion that it is entirely independent of any political considerations. The coincidence of the technical adjustment and the political imperative will be explained in terms of the technical compexity of the issues and the time needed to resolve them.

The desire of politcians to remain in power, to be able to exercise this power as they wish and to maximise their chances of re-election will always overwhelm any considerations of sensible economics or public policy.

Could we not please re-allocate a fraction of the time and effort being expended on this issue to focus on some of the pressing economic policy issues that are fully within Ireland’s power to resolve and which, potentially, would have a far greater beneficial impact on the fiscal position and on the performance of the economy than any relief of this unncessary and excessive burden?

Questions from a dullard.

Why do we have to pay interest on the promissory notes if the Irish Central bank just created the money with permission from the ECB?
Who are we paying this interest too? Is it the ECB or is it Euro, mainly German Banks (who I believe guarantee any money the ECB creates)

Are there other examples of this in world history?

I know sometimes countries partake in quantitative easing which devalues their currency and sometimes they say ‘oh we have done enough of that we should stop’.
But are there examples of countries who agree to actually destroy the money later?

Since the purpose is to create and later destroy this money why should anyone be entitled to receive any interest payments? Isnt it just a perverted Ponzi scheme?

The Money was created for the benefit of European banks in order to replace real losses that had already occurred in a private bank (Anglo) and yet they expect the Irish people to pay it all back with interest.

The sheer lack of morality.

This is a massive transfer of real Irish wealth back to the banking system that is intent on destroying us. We are participating in crazy acts in order to please our captors. This is Stockholm syndrome on an industrial scale.

@ Paul Hunt

“Could we not please re-allocate a fraction of the time and effort being expended on this issue to focus on some of the pressing economic policy issues that are fully within Ireland’s power to resolve and which, potentially, would have a far greater beneficial impact on the fiscal position and on the performance of the economy than any relief of this unncessary and excessive burden?”

Size of “unnecessary and excessive burden” = $3.1 billion of real Irish wealth being destroyed every year for the next 15-20 years.

Could you outline the “economic policy issues that are fully within Irelands power to resolve” and would have a “far greater benificial impact” than the above?

I take your point that there are things that Ireland can do to improve its position but I disagree that the things within our control are bigger than those outside.

“On the Anglo debts, Mr Noonan said troika officials were preparing a joint technical paper, drawing on Irish suggestions, to reduce the overall burden involved in repaying the principal of the €31 billion promissory note.”

From the IT above, the curious may be interested in dredging the full meaning of that sentence.

Some might conclude from the above that we are all violating hallowed ground here as we probe and tease out and critically examine these matters.

These matters will be considered, not by us, but by ‘troika officials’; they will be developed in a joint paper developed by our masters, with the consideration of some ‘point of view’ by Irish negotiators. We are backseat passengers driven by ‘the troika’.

It would appear negotiators in order to protect their own lifestyles and the lifestyle of their political masters, have reduced their input to a compliant assent to whatever is put on the table for them.

In order to backstop this negotiating stance, we are told of unknowable, obscure and ‘commercially sensitive’ ‘technical’ negotiations; in other words, mind your own business, leave this to the troika professionals and our ‘professional’ negotiators.

So, what do we have from them so far, its another fudge, much ado about nothing, ‘Fiscal Compact’. Now the different emerging incarnations of the Fiscal Compact have amounted to a complete watering down of the original document.

Instead of critical evaluation of the content of the document as a remedy to ‘save the euro’; the debate switched to one that chose to concentrate on whether it might lead to the need for a referendum.

So it got watered out to it is hoped for by some: will get past the AG; avoid further challenge in the High Court.

The Compact has nothing in it to address burden sharing. Perhaps because of this blog and commentary elsewhere, the Compact now contains a vague association made by Noonan to ‘the possibility’ of some movement on ELA/promissory notes.

This would be similar to his empty promises on burden sharing for Anglo, unsubordinated senior bondholders.

The Government have freely associated themselves with the Troika austerity demands without getting anything in return. This amounts to a betrayal of the Irish people. Its insulting of the sacrifices made by Irish people to suggest emigration in these times is ‘lifestyle’ choice.

Its insulting Kenny and Noonan are preventing real debate on debt burden sharing by taking it off the political agenda; handing control of the debate over to the troika and adopting a craven, policy of capitulation rather than proactive involvement.

Knowledge is not been shared with the electorate. It is actively suppressed and discouraged. Expect no briefings from our officials on their involvement; their demands for burden sharing.

But the above is no surprise. We have a government of the bankers, by the bankers, for the bankers; the ‘people’ are an embarrassing obstacle to their dictats.

Finally, lets focus on the craven word ‘suggestions’ in the quoted 1st par above. Says it all. Your input is to make suggestions, not decisions; ensure your suggestions don’t rock our boat.

I’ve included in earlier post some burden sharing suggestions that should be in the ‘Compact’: Jan 19, 10:17 above. Damn sure the Kenny/Noonan/Gilmore stooges will not rock the boat in the manner of Icelandic Grimsson or a Bo Lundgren Lundgren. Unfortunately, ‘quiet negotiation’ has been a mask an cover for blind incompetence.

Currently Greece with its burden sharing negotiations are fighting at a weight far above us.

The irony is what has been achieved so far by our negotiators brings us closer to leaving the euro. Our debt burden has been massively inflated by them. They’ve left an economic mess in their wake that is worsening by the minute.

This ‘Compact’ has as much chance of ending the crisis as a leaf falling into a puddle.

When we do leave the euro, we’ll do what we should have done in the first place, http://en.wikipedia.org/wiki/Swedish_banking_rescue

In our case, we will have to enter into true burden sharing negotiations with our lenders.

Rock the boat, gentlemen !

@Aisling
Yes , Art 123 is at the root of the problem.
For the present private euro money system to work Gold must cover the full M1 Euro money supply & all term loans to banks must be risk / reward transactions – risks not covered by CBs
Otherwise we are best going back to goverment money systems with CB defecit spending of low pre 1987 leverage. (8 to 1 or less)

http://www.youtube.com/watch?v=P8fDLyXXUxM

@Carson

It’s a game we have to play seemingly. The fact that the bulk of our problems are caused by excessive public spending is the thing these games are intended to conceal. Most of the chat raises the spectre of a group of foreign bogeymen who can somehow be conned to solve all our problems in a game of high stakes poker. This site suffers from the same attitude. Look back over the posts and you’ll see very little about ways to cut public spending and a lot about how to renege on banking debts.

@Aisling,

What Karl is suggesting is that IBRC should be treated differently to, or better than, private banks because it is nationalized. In which case it no longer falls into the carve-out for private banks and falls back into the general rule that the ECB cannot finance organs of the Member States. This would clearly be in breach of Art 123 (and possibly 125 to boot).

Aisling, What I believe, Karl is suggesting, (I’m sure he might want to reply to you also), is that the ECB through ELA/promissory notes has already funded IBRC. In fact, correct me if I’m wrong, the word is we would not have got ELA unless we signed up to repayments eg this year ¢3 bn + most of which will be funded by ELA.

Now recently there has been some strange debate about this to the extent that the troika have indicated under questioning from eg Vincent Brown, that the troika are not insisting there be no burden sharing.

So perhaps this is a ‘lifestyle’ choice made by our present government.

But the kernel of this is the state is paying out on our behalf national debt into which has been subsumed, IBRC obligations.

To be fair, you do raise the interesting question under European law, whether government has the legal right to guarantee that ‘private’ debt with ELA/promissory note repayment obligations. One could make the same argument re paying for NAMA.

You could argue there should be a clause in the ‘Compact’ expressly forbidding states to take on the private debt of banks, but this will not happen.

The fact is once these debts went from private debt to sovereign debt now paid for through ELA, these institutions are no longer private institutions in the true sense. Their debt is considered part of sovereign debt.

Moving on to renegotiate ELA/promissory note obligations freely given and used to fund bank obligations; this should be our main priority to burden share with our ECB lenders.

@Eamon Moran,

Despite the significant ‘internal devaluation’ that has taken place for Ireland’s non-sheltered sectors, it has not taken place in the sheltered sectors and the price level of Irish household consumption remains stubbornly above the EZ average. I have been banging on for so long about the structural reforms that need to be implemented that I realise I am p1ssing off a lot of people.

So, in effect, is what you are saying is that we should continue to refuse to do anything to help ourselves until external parties solve this problem first?

Good luck with that.

@Aisling,

“Is it too much to ask that the economists occasionally look at EU law instead of ignoring it?”

Thank you, thank you, thank you. At last. It seems that most academic economists – with the possible exception of those based in the US where law, economics and democratic governance are part of one garment – totally ignore the extent to which democracies – and unions of sovereign democracies such as the EU – are governed by the rule of law that is based ultimately on democratic consent.

This tendency by economists to ignore the rule of law and the requirement for democratic consent seems to be more pronounced in Ireland. It may be because governments in Ireland are at the end of the spectrum in terms of the excessive executive dominance they exercise. Once a government has secured and is able to maintain a comfortable Dail majority it is able to operate as a tyranny within the bounds set by the Constitution, irrespective of how softly or mildly it might impose this. Once a government decides to act – and there is no conceivable constitutional constraint – it can get its way.

Since government in Ireland can do this, perhaps many of the economists presume that governance in the EU operates on the same basis. Indeed they might advance in evidence the way the EU’s Grand Panjandrums ensured the (tortuous) enactment of the (reduced) EU Constitution and the establishment of EMU without securing sufficient democratic legitimacy. But it remains fully and legitimately bound by EU law and the requirement to secure genuine democratic legitimacy is now becoming paramount as witnessed by the difficulties Chancellor Merkel is having with the Bundestag and the positions being adopted by governments in the Netherlands, Luxembourg, Finland and Sweden – among others.

However, on this specific issue, as per my comment of p:42am above, I suspect that where there is a political will a way will be found. But it will have to be entirely compliant with EU law as enacted. And it may take a little more than lateral thinking.

@Bond 10:27

I know Lundgren didn’t burn senior bondholders. That’s why I included the condition, ‘ In our case, we will have to enter into true burden sharing negotiations with our lenders .’ But senior bondholders at this time are not the main cause of concern as much of it already repaid; our main problem is refactoring the ELA/promissory notes and interest rates on our loans, extending maturity dates

RE “Apart from €67.5bn in long term, below market cost, loans, which keep things running here at the moment…”

Surely you mean ‘running down’ not ‘running’; ‘running down’ is not working. Its destroying the economy, unemployment, emigration, more austerity.

Plus you present the €67.5bn in long term, below market cost, loans, as if a charitable gift; that money is presently looting the economy with its repayment obligations based on austerity fueled by negative growth.

Note that we do not have a way to inflate our way and grow out of that debt; we cannot devalue; so the true weight of that debt is increased by deflation, rather than decreased.

We live in a society based on deception and odious debt with plenty making hay while the sun shines 🙂

Although for some it hardly effects their lifestyle at all.

@Colm Brazel Once the debt is there and you refinance it or change the terms you likely create new debt or a new facility as at that moment in time so you can’t then argue grandfathering.

In this case, in order for there to be any benefit to Ireland you’d need to change the maturity at least, possibly the coupon (interest holiday) etc which would impact on the NPV and which would look and quack exactly like a new facility to me which would breach Art 123 by failing to fall within the 123(2) carve out.

@ Colm

“But senior bondholders at this time are not the main cause of concern as much of it already repaid; our main problem is refactoring the ELA/promissory notes and interest rates on our loans, extending maturity dates”

And how do you think we repaid the senior bondholders? With the ELA. So one is a function of the other. So if Bo Lundgren were in charge here, we’d be in the same situation as we already are. I’m not sure why you are hoisting him up as your hero? What would he do differently?

@Fulcrum

Sorry, should have said “spend more than we earn” of course.

@ Aisling

“Is it too much to ask that the economists occasionally look at EU law instead of ignoring it?”

Is it too much to ask blog commenters to actually read what people have written before launching these attacks?

I haven’t ignored EU law. In fact, I’ve been very specific about the exact piece of EU law that is relevant.

The CBI’s powers to provide ELA are given to it under Irish law. The only aspect of EU law that prevents the CBI from operating its ELA programme as it sees fit is the one that I have pointed to — article 14.4. of the statute governing the ESCB and ECB.

http://www.ecb.int/ecb/legal/pdf/en_statute_2.pdf

@Seamus Coffey
“The Promissory Notes were added in full to the General Government Deficit when they were created in 2010. The 2010 General Government Deficit was 32%.”

They’re not national debt yet though are they – despite being money the country now owes. Can’t remember the details but possibly the deficit recorded the 31B for the promissory notes but balanced that off with a financial asset on the other side of the debt calculation.

If so plans to reschedule/defer the payments may have accounting issues, i.e. the government might need to recognize the increase in debt in one go rather than over a period of years which isn’t great from the painting-a-rosier-picture-to-the-world view.

@Johnny
I will do my best Tina Turners impression for you – whats public spending got to do with , got to do with.
Its just a second hand form of money in this private money system.

@Paul
I just don’t get it – you want us to be more effiecent , but in this system the surplus created from this will just flow to pay interest.
Most of the Irish don’t own our sov bonds.
A reduction of pay to the sheltered sector will therefore externalise more money out of the country to pay external bonds interest which is happening as we speak anyhow.
The private shopkeeper will have less money in his pocket & so on.
We will have to export even more of our wealth……… this will never stop.
Learn some exponential functions why don’t you.

Productivity will not improve under this money system – its just a transfer of consumption although a lower & lower collective european consumption over time as both physical & human capital gets destoyed to pay interest.

@Karl Of course, I apologise for the generalization. Allow me to amend it.

“Is it too much to ask that the economists occasionally look at the relevant parts of EU law instead of ignoring them, possibly with a basic understanding of how EU law works?”

Your issue is Art 123, and trying to claim that Irish domestic law governing the CBI can ignore this is just plain wrong. Even if it were possible to give IBRC special terms under a literal reading of Irish domestic law (ignoring the specific compliance with the treaties requirement in that protocol – which is unnecessary given the jurisprudence of the Court of Justice on this) Irish law must be interpreted in conformity with the treaties, and any such reading would run splat bang into Article 123.

Getting even one ECB head to agree to this would be a miracle.

@Bond Eoin Bond
Re yours of 7.05

I see bloomberg reporting the the new Treaty/Compact or whatever provides for incorporation of debt brake at constitutional level…
“The treaty will enshrine tougher sanctions, which are already in effect, at the constitutional level. It will make it easier to penalize high-deficit states and require each country to enact balanced-budget amendments.
An ECB spokesman reached late yesterday declined to comment. Martin Kotthaus, chief spokesman for the German Finance Ministry, declined to comment on the pact when contacted by telephone in Berlin.”

To become operative after 12 of 17 ratify.

So it takes away our veto regardless?

Looks like a referendum will be required.

@ CP

once the UK was out, this stopped being a “full” EU treaty, so there was never any automatic veto right. In fact, this new draft at least pushed up the requirement from 9 members to 12. Note: this just means that it’d be operational in those 12 countries, it only becomes operational here provided we agree to it, via referendum or otherwise.

@aisling

“You have to bear in mind that EU law is directly effective and as we can see retired German’s have a propensity for testing the actions of the ECB in court. Personally I think the SMP stands a much better chance of surviving that challenge (assuming the ECB is not caught up in the Greek PSI which would link SMP and Art 125 quite clearly), than the suggested shenanigans above would.”

But who would have standing?

@Karl If ELA were to be provided to everyone on the same terms then in theory you might have a starting point since Art 123 (2) could be invoked. But to offer a deferment on all ELA by the CBI? At first glance how could BOI not gorge herself on the “free” money? Or indeed RBS or KBC or any other bank eligible for ELA from the CBI?

If you change the terms as you suggest you’d change the uptake as night follows day.

State Aid rules mean you’d have to offer the favorable terms to everyone, not just those currently borrowing which would be a pretty expensive shot in the foot unless you think that the Commission would bless something as not being an aid when it was designed to circumvent Art 123?

Yes, the Irish legislation is at issue but only in so far as it does not breach the treaty with the prohibition on State financing in Art 123 and the prohibition on State Aids in Art 107 being the obvious ones. Either or both of these treaty provisions depending on how you structure it will nobble the proposal.

You’ll note that while 14.4 essentially says that the actions shall be deemed to be undertaken by the CBI and not the ESCB the rule in Art 123 does not only apply to actions undertaken in an ESCB capacity, the rule is an absolute prohibition on Central Bank financing meaning, even if there was any doubt, it still trumps the protocol provisions.

@Bond Eoin Bond

Er, we already operate under a Treaty fully ratified by all member states. The effect of the new treaty (and you can call it anything you like) is to negate existing rights, I.e. the veto, and impose sanctions not contained in existing treaties at the behest of a minority of EU members.
At international law level it must be suspect. Perhaps the Brits are right.

In this blog there is a consensus that states that Ireland is victim of an injustice that needs redress. This consensus does not exist outside of the island .On the contrary there is a lot of bitterness against the PIIGS ;it is going to be a very hard sell .
“Help us or we will default and you will be in bad trouble” might work , “Help us because we are worth it”, will not.

@ Aisling

“If ELA were to be provided to everyone on the same terms then in theory you might have a starting point since Art 123 (2) could be invoked. But to offer a deferment on all ELA by the CBI? At first glance how could BOI not gorge herself on the “free” money? Or indeed RBS or KBC or any other bank eligible for ELA from the CBI?

If you change the terms as you suggest you’d change the uptake as night follows day.”

No.

The terms under which ELA is used require that the bank applying for it have run out of eligible collateral for regular ECB operations and also that the bank is in big trouble and would fail without ELA causing financial stability problems. This wouldn’t apply to these other banks you are citing.

I had assumed that bleeding the taxpayer dry for the next twenty years was a ‘lifestyle choice’ the government had made on our behalf so that we didn’t have to worry our pretty little heads about making it (or not) ourselves.

I think the whole prom debate is tertiary to the larger central question.
Our sov debt is external.
Ths whole mess could have been avoided if credit deposits were nationalised and private debts & bank bonds were considered null & void given the corruption in the system.
Which is a very non MMT position – (the MMT boys like the CB to control things , not the people)
Anyway I accept the BoI & AIB boys will always run this sad little bog – giving them a new credit poison licence the next day could have been a option.
Now the debt dynamics are looking terminal although its never too late to try.

@Karl

It would appear Aisling has conceded in her last post but on another area of the law/voting system at ECB you stated in your article that;

“If my understanding of the legal situation is correct, then Patrick Honohan would only require the support of seven other members of the ECB Governing Council to proceed with this plan.”

I am not aware of any statute that refers to this but I do recall an interview Patrick Honohan gave to Vincent Browne in the aftermath of the Honohan report where Vincent questioned Honohan on the ELA and how it is provided.

From recollection, the governor responded by stating that the ELA is provided by the Central Bank of Ireland only after unanimous consent of the entire governing council. He was then asked, from recollection, what would happen if they refused and he responded that they wouldn’t refuse. Presumably a deferment of payment could also fall under this umbrella where unanimous consent of the council would be required?

Shall try and find the interview, which I believe took place after the publication of the Honohan report.

sorry – the old left KNEW this………. I have not touched a drop…… yet

@ Johnny foreigner and paul hunt
“That, in a nutshell, sums up the state of the Irish mindset right now. What do you think the ratio of current expenditure deficits to bank bailout payments looks like each year for the next 5 years?”

I think you guys misunderstand what I am arguing.
I can tell you that the deficit for 2011 was made up of 9 billion in Banking repayments and 15 billion on Irish annual deficit.

Lets presume we do what you ask and cut hard and in 2 years time we are able to reduce the Irish annual deficit to about 7.5 billion. We still have another 3.1 billion in promisory notes and about 5 billion in interest repayments on our national debt.

I can also say that it there are already further bank repayments for ILP and credit unions on the cards for this year and lots more pleasant surprises down the road.
There is also evidence from Nama Wine Lake that unless there is a 20% increase in current property prices Nama are looking at losses of about 10 Billion. As prices continue to fall this figure rises.

I agree with your prognosis about the need to shake up the many powerful vested interests who are like a chain around the economies ankle.
However i believe that the banking debts the country have taken on are like a foot on our neck.

My only query is with regard to what actions will have the biggest financial impact.

Tackling the vested interests or Arguing for relief on banking debt.

Obviously the answer is that we should do both.

But if you were to ask me what would have the biggest impact on our financial position then I believe convincing our EU partners that we need significant debt right down will have a bigger immediate financial impact.

The only reason i make the point is because People like Colm McCarthy argue we should concentrate on the things within our control.

I would argue that the a significant increase in pressure from all areas of Irish society aimed at the troika is also within our control and may well have very significant positive results.

@Eamon

Good honest answer, I wish the people who run this site would have those figures on the front page so no one can avoid them. The % of total annual increase in debt that is associated with the bailout will be lower in the coming years and don’t forget that the interest payments on the total national debt are largely related to excessive public spending.

There is so much visceral anger in this country at the payment of promisory notes but so little at the deficit spending – more than 1 billion every month at the current rate. Karl Whelan believes the Irish government should ‘declare’ that we won’t repay a 3. 1 billion promisory note in March – while at the same time this State will borrow the same amount to cover current public spending over a few months. What if the people we borrow this money from ‘declared’ they didn’t fancy giving it to us?

Re the ‘foot on the neck’ problem, all the debts we incur as a nation are like a foot on the neck, they all have to be repaid in the end.

@Paul Hunt

I would agree with you if we lived in the world where all the people analyse the situation rationally, taking into consideration all the facts and whatnot on the level field. What is important is the narrative, and the currently dominant one in most of the European elitedom is that everything was caused by “profligate” governments in the Club Med and Celts. Only very recently have some started mentioning “growth,” whatever that means, as if it was something incidental. They refuse, to this day, to recognize the fact that countries like Spain were most certainly NOT “profligate” before the crisis hit them hard. When there is already TOO MUCH emphasis on that in public discourse, I believe saying public spending should be our overriding priority will put us into an even worse deadlock down the road.

Every country has to live in the so-called new reality, which will certainly necessitate the cut in spending, not only in public sector but private sector as well, but that would be forced upon us by the economic reality anyway, as it more or less has already. The immediate concern I have regarding the whole issue is that very FALSE narrative currently wide-spread in Europe (and elsewhere for that matter), which will certainly lead to unnecessary misery everywhere. Economy is a delicate matter which has no definite one-way solution, but I can’t possibly embrace your priority in discourse given the way the European elite have been acting.

Quid pro quo’ sounds appropriate. Let’s see it done.

@Karl Sorry, I missed a step because it struck me as obvious and I referenced it but didn’t spell it out. It is not obvious at all if you’ve never worked with State Aids.

ELA is a State Aid but is pre-approved as it were by the Commission under certain conditions including that the rate is 1% above the ECB rate which makes sense. So the rate doesn’t reflect the rubbishness of the assets, but it is higher than is otherwise available. So while BOI can’t access ELA they wouldn’t want to so long as they can access LTRO (itself accepting some pretty rubbish assets). If ELA gets better than LTRO then you have an obvious competition issue which the Commission cannot wave away, and little to defend it as there has been no material deterioration in the Irish banking system on which to justify it.

If you were to drop the rate, in order to have any chance of getting it through State Aid you’d have to broaden the terms to avoid distorting competition so the class of borrowers would increase thus making it uneconomic, or else admit it was designed for IBRC and thus not distorting competition as the aim was to help the Irish taxpayer. Neither argument appeals, the latter because somehow IBRC is still in competition with the pillar banks as long as it remains.

State Aid will get you from one side, Art 123 from the other.

An idea that is vaguely percolating, but I know nothing about sovereign accounting other than it is opaque is whether if you could convert the ELA into a discounted facility, and convert the pro-notes into discounted notes you could help with the deficit by never having (well, not for years) a cash hit? In IBRC’s accounts they should be capable of matching out the two, the economic terms of the ELA could remain only you’d swap interest for discount accretion which shouldn’t raise issues.

@ Colm Brazel

“As I’ve written earlier on this, my view is that our ELA/promissory note obligations need to be recollateralised. Let me explain”

I don’t understand what you mean by that. Right now the promissory note is the collateral for the ELA. So you want to replace it with something else?

@Overseas
The local petty elite here , are not irrational although they are not very bright either.
The dynamics were different then in Iceland , because the Krona devalued almost everybody lost withen that society.
Because we are using a external currency the wealthy & sections of the middleclass thought they could ride it out.
But the debt dynamics are unstopable now……………. its just a question of time.
All those motorways & houses in the middle of nowhere will decay.

Anything not connected to the railway network will slowly rewild.

http://www.youtube.com/watch?v=ZZNSUp9nQyM

Aisling:

You fear that a state aids issue arises because ‘…somehow IBRC is still in competition with the pillar banks as long as it remains.’

IBRC does not make loans, does not accept deposits, and is in the business only of collecting whatever it can from its remaining loan book. I cannot see how it is in competition with the other banks in any way that matters. Could you expand on ..’somehow…’ ?

Shay,
Default may be the end game. If we did it now, how would you close the primary deficit. 85 % top rate of tax and 30-40% reduction in public service pay bill.

Since default may be the end game, no citizen should keep a red cent in an Irish bank. Of course those with money know that and their assets are offshore. It is the poor middle class sap who does not have enough that will get burned.

@Colm McCarthy the “somehow” caveat was intentional because the definition of having the capacity or potential to distort competition under the State Aid rules is incredibly broad.

“in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings”

Let’s say that IBRC has a bunch of loans it is working out but would sell if an offer was made at the right price. BOI has a similar portfolio. In that case there is the potential for competition, both could sell the loans to the same potential bidder. We don’t need a current auction. No actual distortion is required for Art 107 to bite, the fact that IBRC could hypothetically undercut BOI in such a sale because it is in receipt of cheaper financing under the proposed ELA could be enough. The fact that its general cost of finance is higher is neither here nor there if the official financing is cheaper.

Once the cheaper financing is available the onus is really then on the beneficiary to prove that competition could not be distorted by it, and the fact that the Commission has laid out so much detail on bail outs they clearly think that ELA is capable of distorting competition.

So while to a lay man the lack of deposits etc should be enough to say there is no competition, any potential to distort competition (and such potential has to exist so long as IBRC has any assets comparable to the pillar banks) is enough to ensure that the Commission has a look.

The killer with State Aid is that if there is a risk of one, and you grant the aid without it being blessed by the Commission in advance, then there is a claw back with interest which would increase the cost of the pro-notes!

@TullMc
The new higher cost of imports will reduce imports………….. less imports means more money is available in the domestic economy to tax , spend & save.

The higher imports costs will show our planning for what it really was – bringing forward wealth via credit that was not there or is at least is gone now.
Colm Mcs precious highways will be useful to drive cattle I guess.

But that is only if society holds together – I have my doubts.

@ BEB

Thank you very much for this contribution. It clarifies a lot of things for me which, I suppose, even someone not an expert could intuitively guess; if the Irish taxpayer is to be relieved of a loss it has to be borne by someone else. The someone else in this instance is either the bondholders – who are home and dry – or the taxpayers of other countries (although this reality can be camouflaged by references to CB’s sharing the losses etc etc.).

To the argument that Ireland has “taken one for the team” with regard to the treatment of bondholders, to use a phrase used, as far as I can recall, by Colm McCarthy, and should be recompensed, this “compensation” is already reflected in the concessionary nature of the financing that we are now receiving.

What Minister Noonan is saying about the promissory notes makes perfect sense to me and should make sense to those that have the deciding in the matter viz. the loan will be repaid but over a more extensive period to improve the capacity of the debtor – Hibernia – to actually manage it.

On the argument that all this is the fault of the designers of the euro system, we can hardly complain as we were part of the design team.

The rest of the argument, in all its arcane detail, is beside the point.

@Karl W

If my understanding of the legal situation is correct, then Patrick Honohan would only require the support of seven other members of the ECB Governing Council to proceed with this plan.

Coincidentally, Monti has been reiterating a congruous point for the past two weeks, viz. no one euro country can make it alone. the Franco-German axis (terrible metaphor, apologies) is not enough nor does it have sufficient support/confidence to turn the tide. Perhaps, i am missing the bigger political picture, which is quite likely, but the countries either in or on the edge of bailout should consider their commonalities and especially their limited capacity for growth and try to advance a common front when negotiating extension of debt. Ultimately, I believe without wages falling and I realize this is anathema in Ireland, it won’t be possible to move forward. Some for of domestic debt default is essential to make a recovery on low wages viable.

@Dork
Look, wages have to fall. Unfortunately, social welfare is a pit of of snake with its various scales of entitlement. Personal debt is a major problem but the government has decided to look everywhere else but at that for as solution.

I had a chat with a medical friend of mine a few weeks ago who told me he had been threatened with being reported to his disciplinary body because he was ‘blocking’ a social welfare claim by refusing to provide a requisite diagnosis.

That is the reality of life in Ireland. A proportion of people determined to scam and game the system and a proportion determined to do the right thing. But when push comes to shove, the politicians will side with the social welfare claimant, the gougers of the public purse, the aficionados of public sector largesse.

That’s ireland, where the obvious is broken but the gentry rant and rave about the failure to accept anomalies as normal.

We have two Romanians working for us in Italy. One speaks six languages, and the other five. One has a degree of some sort the other is what the Irish would class as ‘just a mechanic’. Neither earns anything near what the Irish would consider comfortable.

I’m enjoying this tennis between Prof. Whelan and Aisling (if the sports world has Wozzilroy can we here on Irisheconomy.ie have Karling?).

At the moment, I’d say the ball is in Karl’s court; Aisling has played solidly from the baseline but, it seems to me, has wound up the rally with an unstoppable cross-court forehand winner which appears to have not only defeated Karl but knocked out a player (Colm McCarthy) on an adjoining court.

@ Sarah

Sorry, I’m afraid that Aisling is not refreshing; IMHO, she needs to apply an evidence-based approach to her argument – both Karl and Colm have highlighted the irrational aspects of her positioning.

Having said that, I do agree with your point about the silence of the lawyers…

In the Vox article Dr. Goldstein also points to Dr. Lanes ESBies as the best answer to break the banks and soveirgn debt tangle.

@ Aisling

Very interesting and well argued contributions thank you.

‘The problem with all of this is that national accounts don’t reflect the kind of accounting standards we’d enforce on companies so we remain comparing apples with pears depending on our own political ideals or views on morality’
‘…we need a political solution based on fairness rather than looking for a legal one…’

A couple of earlier contributors have put their finger on it, particularly Chris above. I read that Martin van Eden noted in his departing speech to staff, we have little or no awareness of conflict of interest issues in Ireland.

Our state has been captured’, and national accounts are opaque for all sorts of reasons. Our well heeled clans have family members in key positions in state, business, universities, and the professions. They exchange insider information and assets amongst each other as they see fit. ‘Why wouldn’t you for God’s sake? Everyone else does’.

There is always change, of course, We have the old, brass-plate private school types, and the driven hustlers arriving in from the bog and the suburbs. New elements are introduced as the country interacts more with the outside world, but the game doesn’t really change. The rules are made up along the way, but the law of omerta is constant.

As you rightly point out, we ended up with the worst of all legal worlds after the Anglo debacle. But who gave us that ? It was the same well-placed, thoroughly conflicted network of legal and accounting firms who gave us the bubble. Fairness was never a consideration for the professionals. It’s just business. As the Russians say, the fish rots from the head.

@ All

Some interesting figures on the emerging shape of the Greek “voluntary haircut” which give an indication of just how deep the larger European banks must have been involved, almost certainly with the encouragement of their governments, especially in relation to financing multi-billion defence contracts for military equipment that Greece neither needed nor could afford.

http://nachrichten.rp-online.de/wirtschaft/glaeubiger-griechenlands-verzichten-auf-68-prozent-1.2681131

@ Bond

Look if you are confused/confusing based on not understanding the points I’ve made, that’s one thing; its quite another to state your lack of understanding of my points is due to their inaccuracy.

So, let me clarify a bit more for you 🙂

Regarding the amounts of ELA in question, the figures I’ve used came from Karl’s estimates I quoted above, here again:

““…At this point, the vast majority of the outstanding ELA, about €42 billion by my estimate, is owed by the dreaded IBRC. In fact, the ELA now appears to account for about two-thirds of the debts of the IBRC.””

You write:

“The promissory notes amount to 28bn right now I believe, not 42bn,”

You obviously have only included the IBRC portion, outstanding ELA is €42 billion by Karl’s estimate.

Also you get the following wrong:

” The 3.1bn is not “liquidity assistance”, it is a cash funding of those government guarantees, essentially like a government bond being redeemed at maturity, or in this case amortising down over time. ”

There’s no point debating how many angels are on the head of a pin with you. I think its evident throughout the discussion I, others, Karl are motivated by the DEBIT in our balance of payments in the exchequer returns that must be repaid to the tune of The 3.1bn

But I’ve already quoted Karl on this:

“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….”

That the above is so is a national disgrace.

@ Karl @Aisling

The invocation of article 123 is a bit of a red herring. I’ve invoked the term ‘systemic’; Karl has mentioned the discretionary powers of the ICB and the banking legislation underpinning this. But, fair dues to Aisling, her legal mind looking solely through the lens of Article 123 leads her to be not for turning on this:

“I think Karl’s argument for IBRC not repaying the ELA until we can afford to do so would be illegal.”

The problem with Aisling’s view is that it is too narrow a view of what ELA is and how ELA has come to be used in the meltdown across the EMU. Note the reference to Gerry Corrigan in this press release and the term ‘constructive ambiguity’

http://www.ecb.int/press/key/date/2003/html/sp030707.en.html

“Fourth, emergency liquidity assistance (or, in older terminology, lender-of-last- resort), perhaps the most traditional tool available to a central bank for dealing with financial instability, is possible. It includes both the provision of liquidity to the financial system as a whole through market operations, as well as emergency lending to individual banks. It is important to recognise that not all liquidity injections aimed at preventing the spread of a liquidity problem relate to a crisis, as central banks routinely offer liquidity against specified collateral requirements in order to support the orderly functioning of markets.

Because of the obvious dangers of moral hazard, central banks have maintained an increasingly cautious stance towards emergency lending by adopting a policy of case-by-case discretion. They decline to specify in advance which financial institutions would be granted emergency liquidity and under which conditions. Gerry Corrigan has dubbed this “constructive ambiguity”.

In theory, we all agree that emergency liquidity support should be provided only to illiquid but solvent institutions. But the distinction between these two concepts is particularly difficult to make in periods of financial distress, which is exactly when central banks may have to use this tool. Consequently, careful judgement is necessary in providing emergency liquidity assistance. The Asian crisis provides a clear example of this. Central banks in the region had to make difficult choices between providing support to individual institutions and encouraging moral hazard, and limiting the fall-out of failing institutions for the wider economy. All central banks could potentially face this dilemma.”

I should restate my own position. I’ve called for the setting of the repayments under our ELA obligations to null and void. Its important to note debt restructuring of this form requires amendments to the present Treaty. So the debate re the present legality of this is erroneous; the legality would be an amendment to present treaties.

My point is the fiscal ‘compact’ is the perfect place for such amendments to be dealt with that would provide the required legal framework for this.

So, I wrote a draft amendment to the Fiscal Compact our ‘leaders’ should be campaigning to achieve instead of silently hiding.

After the following in the compact,
‘TITLE VI GENERAL AND FINAL PROVISIONS Article 14’

Should there not be also:

TITLE VII

AMENDMENTS AND BURDEN SHARING

1. This Treaty shall be ratified by the Contracting Parties in accordance with their respective legal requirements. It will include a burden sharing structured agreement between contracting parties, the ECB and government of Ireland. A sum of ¢34 bn through ELA and promissory repayment mechanisms will be set to null and void. Instead this debt will be collateralised through the EFSF and later through the ESM to ensure the citizens of Ireland are not held legally responsible for the debt of Anglo and associated banks.

2. This Treaty shall further include clauses and amendments to be agreed as part of an overall restructuring agreement for Ireland’s debt based on ability to repay. These clauses and agreements on burden sharing will be put to the Irish people in a referendum; the support for these amendments and clauses requiring possible further burden sharing will include a decision to leave the euro currency if such conditionality is not accepted and such burden sharing losses are not to be freely accepted by all parties to the agreement.”

end of draft.”

Instead of signing the above and making himself a captain Smith of The Titanic or a Capt Schettino of Costa Concordia, agreement re debt sharing on the above lines, might actually give Ireland a fighting chance.

Kudos to Karl’s excellent work on the above. I trust I’ve broadened Aisling’s mind and shown how murky 123 actually is.

Note, the above would only cost the EFSF ¢3.1 next March and it would sure indicate to markets that we are not the Costa Concordia; the EFSF take the full bill.

I should say I still believe the Der Euro Ist Fertig !

@Aisling,

More here on why the ‘the one-rule-fits-all ‘ does not apply:

http://www.ecb.int/pub/pdf/scpwps/ecbwp1008.pdf

“The basis of discussion goes back to the argument of Bagehot (1873) who expressed the fundamental, classical
view on this issue. He argues that the central bank should be known to be ready to lend without limits to any solvent bank against good collateral and in penalty rates, so that banks do not use them to fund their current operations.
However, a lot of research and experience have been accumulated since Bagehot and the points in his principle have been questioned and re-visited. A naive onerule-fits-all intervention policy is no longer considered, rather, intervention policies appear in practice to be tailor-made. The Appendix of this project attempts to shortly review the debate on the Bagehot principle, address a few more relevant issues (such as the role of monetary policy and the issue of lending to the markets versus lending to individual institutions) and discuss the dilemma faced by policy
makers with respect to intervention policies.”

@ Bond

Your confusion is unreal at this stage:

You are ‘supposedly’ now correcting me in

“““…At this point, the vast majority of the outstanding ELA, about €42 billion by my estimate, is owed by the dreaded IBRC. In fact, the ELA now appears to account for about two-thirds of the debts of the IBRC.”””

In fact, that quote you refer to is from Karl. I know what Karl means, it should be apparent to everyone, apparently not to you. €42 billion needs to be repaid. We are obligated to repay it.

Yours “reducing/’amortising’ down year by year (the 3.1bn figure).”

That is laugh provoking. You are paying for it. We’re all amortising it down. Its money that needs to be repaid.

In short you’ve blinded yourself on technical definitions unfit for purpose in order to ‘pretend’ these instruments do not exist; and no obligation exists on the state by way of its errant guarantee re Anglo and the banks.

The technical definitions of ELA I’ve provided for the ECB links earlier posts. Unfortunately, you choose to ignore these.

Obviously your correction there of Karl, doesn’t apply to me 🙂

@Micheal
We will never be a Scandinavia , however I don’t think you understand how much a non – optimum currency has changed the real domestic scene over generations now.
Domestic factories no matter how well managed cannot cope with these extreme monetory credit flows which utilise energy in a non holistic manner.

I am sure you know we had real domestic factories albeit mainly agricultural in nature up to the 70s that dominated the place & indeed beyond for a bit.
No country no matter how well managed can live with this extreme Russian Doll syndrome of succesive multinationals which hold more cash then nation states.
But we choose to tap into this model for whatever reason (perhaps because we had no choice)

We were integrated with the UK economy , but we decided to leave – for very good reasons.
But our GNP was higher then our GDP back in 1973 perhaps because of labour remittances.
We now have a Frankestein like economy because of efforts to integrate the impossible into the European experiment.
This extreme form of social engineering must stop – it cannot continue for much longer anyway.
Historical & real economic factors outside of artifical capital flows and their sister labour flows has caught up with us.
You must now accept that the energy put into developing extreme market states such as ours as been very net negative.
When the capital flow rather then real trade model dies as it surely will we will be left out in the cold as our petty elites have difficulty understanding how real energy systems actually operate.
They just want to the feed really.
Poor dears.
The succesive changes in 73 , 79 , 87 & 92 has reduced the redundancy of the place both in Human & capital terms.
Just look at young kids now – could they work down in Verolme dockyard today – not a chance.
They don’t even play football for fun anymore – they all have to be put into a structured team envoirment before they play.
They have become brainwashed, unable to use innovative thinking or even the most basic organizing ability.
Do people honestly believe we will have a civil war on the tiny scale of the last one when social mores prevented a continental style butchery the last time ?
No – when this goes down , it will be catastrophic – given the severe mental damage people have been exposed to by the cartel.

Most of yee lads have difficulty understanding the scale of what has happened & what is about to happen.
This talk of Prom notes is merely a distraction & abstraction.

@ colm mccarthy

I am sure that there were experts in Finland prior to their crisis in the 1990’s who were doing the same thing. The real issue is how the Finns responded (as Michael Hennigan comments above).

The problem with the debate in Ireland is that it has hitherto been based on a “them and us” attitude with little appreciation – even in the new government – that Ireland is a sovereign nation participating in everything that is going on.

The situation seems to me to be very finely balanced and could tip into disaster territory very easily cf. latest news on PSI negotiation with Greece.

http://www.irishtimes.com/newspaper/breaking/2012/0121/breaking6.html

On a related issue, that of the true causes of the crisis, which I have been banging on about for some time, and the need to deal with them, Derek Scally had a very interesting report on the changing mood in Germany with regard to the conduct of German labour policy over the past decade. The topic for the next summit will be how to put meat on the bones of this change in direction (even Sinn appears to admit the justification for it), not the fiscal pact, which is all but a done deal.

http://www.irishtimes.com/newspaper/finance/2012/0120/1224310513431.html

Will Europe get to the meeting on 30 January in one piece? That is the question!

P.S. NB omission of Ireland from one study because the authors did not trust the relevant statistics!

@ Colm

Here is a very abridged version of Anglo’s final balance sheet from the 30th June 2011. Can you see what will happen if all the Central Bank deposits (the ELA) it had drawn down was declared “null and void”?

@Seamus
If we externalised the losses on the bond holders & indeed large depositors at the time the private debts could have been written off.
With mortgages holders becoming the owners of their property although much of it would become near worthless in a all goverment money envoirment , which is in fact a very good thing as it would fee up resourses for productive uses.

But that boat has sailed more or less.
The private debts have become goverment fiat – which is criminal in my opinion.
So we must defecit spend that amount & more.
We have no other choice now because real human capital is being destroyed – its catostrophic whatever way you cut it.
We must enter into a triage operation , with the west of Ireland in very big trouble (only Limerick & Gal-way can be saved although I have my doubts about Galway since it is a teacher like economy using the wild colonial boy routine to get income)
The population must move into the empty apartments of Dublin & Cork , with the wider Waterford market towns becoming Industrial areas also.

Without a rational spatial stratergy we will diffuse any surplus into more waste via imports.

@ Karl

Anglo sold a $10bn US loan book in Q4, so I assume ELA to be materially lower as a result now. I reckon 36-38bn.

Seamus Coffey wrote above ‘We (the State) will make a payment..’ but the Irish Constitution says:

“..the source of authority in Ireland and of the fundamental law of the state is the people of Ireland. Hence the Preamble to Bunreacht na hÉireann says: ‘We, the people of Éire,…do hereby adopt, enact, and give to ourselves this Constitution’.

http://www.constitution.ie/constitution-of-ireland/default.asp?UserLang=EN

the source of authority in Ireland and of the fundamental law of the state is the people of Ireland. Hence the Preamble to Bunreacht na hÉireann says: ‘We, the people of Éire,…do hereby adopt, enact, and give to ourselves this Constitution’.

@ Seamus

Start October was my belief. And 80-85% of par payment for them. So IRBC ELA = 36-37bn (incl INBS), small bits at the other guys. I believe BOI to not be in receipt of any at all anymore.

@ Eoin

Without updated accounts, it’s tricky to guess the outstanding amount. However, the Times reported in late October that IBRC had only received €2 billion so far.

http://www.irishtimes.com/newspaper/finance/2011/1027/1224306561456.html

And for all we know they could have directed that towards paying off, em, bondholders or the ECB.

@ Seamus

I think you know this but just to be sure to be sure — I have never said the ELA should be declared “null and void”.

@ Colm

“Thanks for your post there. It might help other posters focus on this. I enjoyed it, its stated very well, but you’ve left out one or two issues.

Firstly, let me state what you have in your post was already my understanding there.”

Genuinely hilarious.

Here’s the deal. ELA and promissory notes are entirely different things. Stopping confusing the two.

ELA is a liquidity tool used by the central bank of Ireland (not the ECB, though their approval is required) to give liquidity to Irish banks on the back of non-standard collateral outside the ECB collateral framework. It is presently around 42bn, which is primarily given to IRBC, but which is also being provided to other Irish banks.

The promissory note is a 28bn capital instrument being used to act as the underlying regulatory capital base of IRBC and EBS. It is a long term government guarantee which is slowly amortising down at a rate of c.3.1bn per year, the guarantee (which has a subjective true value) being replaced by physical cash (which does not, fist current critics notwithstanding).

The fact that IRBC “owns” the PN is inconsequenntial. It could technically (though not practically) be sold on or held by anyone. A French bank could own this claim against the Irish state, for instance, and given where Irish bond yields are right now, in theory it may actually be valued at more like 110% of original nominal value.

The PN is ‘worth’ 28bn right now, and is used, alongside other ‘real’ loan assets, to access between 36-40bn of ELA for IRBC/EBS. Other Irish banks, using ‘real’ collateral, also access a small amount of ELA of a value between 4-8bn.

ELA and PN are completely separate instruments. ELA provides liquidity only and pre dates the existence or creation of the PN. The PN is a capital instrument, does not liquidity (cos it’s not cash), but which can and is being used as the collateral for the ELA facility, alongside other collateral. However the ELA does not exist purely because of the PN, and does nothing to help the capital position of any bank, nor is the PN’s purpose (as opposed to its use) to provide liquidity to any banks. Both could, and have, operated completely independently of each other, and could, though unlikely, operate in such a mannner again sometime.

Not paying the amount due to the ELA sounds very sensible except for one thing. As I understand it the debt is actually held by the Central Bank of Ireland in trust as it were for the ELA. The powers that be in Europe are not daft (unfortunately) and they have neatly passed the buck to us. We can default on payments to the ELA all we like but it just means the CBI and thus the Irish taxpayer picks up the tab. I maybe wrong, but that is my understanding of the conundrum we face.

@ Bond

I think this conversation is done. There is no confusion other than your refusal to accept what I, Karl Whelan, Seamus Coffey have already stated.

Re “ELA is a liquidity tool used by the central bank of Ireland (not the ECB, though their approval is required) to give liquidity to Irish banks on the back of non-standard collateral outside the ECB collateral framework.”

I’ve at length given links to ECB documents explaining the process involved. Its tiresome to be ‘corrected’ with a ‘correction’ that agrees with what I’ve already stated.

Technically you are incorrect in StaTing “ELA and PN are completely separate instruments.” I’m not going to pull you up on this technicality because you yourself correct yourself there by StaTing :

“ELA is a liquidity tool used by the central bank of Ireland (not the ECB, though their approval is required) to give liquidity to Irish banks on the back of non-standard collateral outside the ECB collateral framework.”

Read back through the posts to see exactly what that ‘approval’ means; I’ve provided the links for people to read up on ELA considered from the ECB point of view.

These links provide the substantive case against the narrow understanding of Article 123 and comments by Aisling. They refer to the ‘murkiness of ELA’.

I really do hope the Irish team and are not blinkered by such an understanding that will prevent them obtaining burden sharing relief on the odious debt concealed by the PN especially in regard to Anglo.

So no need to go repeating forever what has been set out clearly already by Seamus Coffey post on PN. Clearly at this point you are not out to contribute substantially to the discussion, just troll comments meant to incite and showing a tiresome conceit.

But look, I dont disagree with most of your 5:51 post apart from your contradictory PN and ELA are completely separate instruments. NB ELA does indeed require the approval of the ECB, in layman’s terms earlier I compared it to the issuing of loan approval.

I’ve also explored earlier what happens when there are losses made by one CB through its ELA facility, read back on that also.

@ Karl, Seamus

Re setting ELA to “null and void” never at any point quoted you guys as saying anything of the kind.

I believe Karl’s position is the rather lightweight call to have such payments deferred until the time arises that the total bill drawn down by PN against ELA can be afforded to be paid back. But he can elaborate on his position in this regard is he wants.

My own position is the same as before. We should demand that ELA be set to null and void. Note, I used the figures of ¢42 bn of which the IBRC is ¢28 bn.

By using the figures to declare and substantiate the way I was using the term ELA, i was using the term in the same way Karl Whelan in the B&F article uses the term; namely, the realisation of ELA through PN we are all paying through the nose for at ¢3 bn annually.

So Bond, it is indeed hilarious to see you attack me on a number of occasions when I discover you are not doing your homework and hilariously discover the quoted remarks you attribute to me are not mine at all, but those of Karl Whelan.

Another hilarious moment for me was when you rubbished another remark allegedly made by me again, but in fact was taken from an ECB document.

So here you go rubbishing ECB, Karl Whelan and myself on technical points you find disagreement with; then you correct those points with a restatement of the same points indicating you agree with those very same points yourself.

Hilarious is the word. Next time, before hitting ‘submit’ button, have a cup of coffee, followed by a read of the post including any links it might have:)

The question is, which one of us is ‘Moriarty’? Lol

@ Aisling

Re “My point was simply that the significant alteration of the ELA Karl proposed strikes me as breaching either or both of the prohibition on State financing in Art 123 and the prohibition on State Aids in Art 107.”

I’ve answered this is earlier posts. Basically, I’ve argued that you are mistaken; that confining your interpretation of law through the lens of those two articles means that you do not realise that such a classical understanding dismisses further development and refinements of the ECB position re ELA.

I’m not trying to be a contrarian here. I’m purely basing this view on research of my own I believe to be very solid.

This document encompasses my understanding. Your view is more Bagehot than tailor made. I believe you’ve boxed yourself in; a more correct approach would be to try to think outside the box in this case 🙂

Also my 12:40 post there.

My own view is represented here:

http://www.ecb.int/pub/pdf/scpwps/ecbwp1008.pdf

“The scope and the merits of emergency central bank liquidity assistance become murkier when one considers the conditions under which the bank should lend in cases of crises, i.e. the optimal intervention policy.

The basis of discussion goes back to the argument of Bagehot (1873) who expressed the fundamental, classical view on this issue. He argues that the central bank should be known to be ready to lend without limits to any solvent bank against good collateral and in penalty rates, so that banks do not use them to fund their current operations. However, a lot of research and experience have been accumulated since Bagehot and the points in his principle have been questioned and re-visited. A naive onerule-Öts-all intervention policy is no longer considered, rather, intervention policies appear in practice to be tailor-made. The Appendix of this project attempts to shortly review the debate on the Bagehot principle, address a few more relevant issues (such as the role of monetary policy and the issue of lending to the markets versus lending to individual institutions) and discuss the dilemma faced by policy makers with respect to intervention policies.”

Above by Kleopatra Nikolaou Liquidity (Risk) CONCEPTS DEFINITIONS AND INTERACTIONS 12:40 “

@ DOCM

re “Is it not time to declare this thread “null and void”?”

I’m ELA’d out at this point and I’m not even in LA or on a plane to LA 🙁

But its been a good discussion.

I’ll allow Bond to have the last word, he always has 🙂

Game, set, and match to Aisling. Who would have thought a tax adviser would have blown everyone off the court? Perhaps the site has become too inward looking. It need more input from those other than economists.

@Seamus Coffey

I have since read your excellent post on this topic from a few days ago.

To no doubt oversimplify, the answers would seem to be (a) and (a).

We know for definite that the interest profit that Anglo makes on the Promissory Notes is not initially lost as Anglo is 100% state-owned. It remains to be seen what Anglo will do with these profits. It appears that the chunk of the interest that the Central Bank takes for providing the ELA also stays within the State.

It would seem that the real costs of the interest rate on the PNs are the finance charges on the money borrowed to pay for the interest rate portion of the annual PN payment.

The question remains as to why Noonan doesn’t simply say, in response to all the Dail questions on the matter, that the PN interest charges are paid from one arm of the State to another, and that the cost of the PNs will be closer to €31bn rather than €47bn.

@Bryan G A complaint is not required although this is an interesting point. Let us say that moral suasion (is that the phrase du jour from Greece?) could result in all other parties making reps to the Commission which were sufficient for the Commission to bless it (and I think you’d run into significant moral hazard arguments there since so many State Aid cases involve public entities or even public monopolies such that the Commission has to take its own position regardless of reps) then the aid could, in theory be granted.

But, and this is a big but, two years later BOI is bought out by X Bank Plc the board of whom take a very different view not least because the economic climate in the EU has greatly improved (fingers crossed). They then challenge the ruling, in Court if necessary. Because the Commission blessed the original aid the claw back would not be retroactive, but there the aid could be required to be withdrawn going forward. So long as any player who is currently in, or could enter any market in which IBRC is, this risk remains.

In the scenario we’re discussing, in the context that IBRC is not the party intended to benefit (the Irish taxpayer is) and IBRC can (through us, nasty zombie that it is) cope with the current ELA You’d be asking the Commission to take a significant risk here to allow the rescuing of an entity which doesn’t, at this moment in time, need rescuing which I don’t see them taking.

The jurisprudence of the Court on this is very clear, once there is an aid, and once any potential for competition distortion is shown, there is a very high burden of proof to prove no threat to distortion.

Prof Whelan’s observations and proposal discussed here:

“Gene Kerrigan: This is Enda’s ‘freedom’ for our children”

http://www.independent.ie/opinion/columnists/gene-kerrigan/gene-kerrigan-this-is-endas-freedom-for-our-children-2996145.html

@DOCM
Re NYT article..obviously written before the latest suspension of talks. The two top guys had to go to Paris for long standing dinner engagements.
Excellent article in Der Spiegel on debt..would make you wonder about Germany.
Thought this bit was classic…a solution to our debt woes….
“Greece experienced a particularly unusual bankruptcy in 1922, when then Finance Minister Petros Protopapadakis ordered that all banknotes be cut in half. The one half remained currency, but was worth only half as much as the original note, while citizens were required to exchange the other half for a government bond. A quite literal debt haircut.”
Could we cut our euro in half?

http://www.spiegel.de/international/world/0,1518,806772-2,00.html

@Paul I broadly agree with you expect for the reference to Colm’s article. Actually I’d be quite supportive of Colm’s position as an adherent to the rule of law. The ECB has a mandate to protect the eurozone banking system just as it does not have a mandate to bail out Governments of Member States.

I’d read Colm’s article as questioning whether, if the ECB is continuing to put pressure on the Irish Government to pay the holders of junk bonds in a zombie bank, to protect a banking system already paralyzed they are acting within this mandate?

I don’t think we’re going to get an answer (we clearly didn’t at the press conference), I’m not sure we should get an answer because if the ECB is aware of further stresses (and the obvious ones are pretty clear) in the eurozone banking system I’m not sure putting those in the cold light of day is actually the best way to deal with the crisis (negative feedback loop between EBA stress tests and sovereign bonds anyone?).

But he’s right to question whether they’re acting within that mandate. The rules should be applied, both when they hinder us but also where they could benefit us, and questioning whether they are being applied is a good thing. Even if it doesn’t illicit an answer it can help further the debate.

@aisling

@Paul I broadly agree with you expect for the reference to Colm’s article. Actually I’d be quite supportive of Colm’s position as an adherent to the rule of law. The ECB has a mandate to protect the eurozone banking system just as it does not have a mandate to bail out Governments of Member States.

“The rule of law”? Oh dear Lord.

Almost every economist outside the Eurozone and anyone on the left inside it grasps that the laws that the EU operates under, particularly the single mandate of the ECB, is a substantial reason the European component of the global financial crisis grew into the disaster it now is and also that these same laws, and the political and class interests they serve, remains a major obstacle to solving it. The fiscal compact, the latest iteration of the austerity and misery pact, is the perfect example of how the law itself and who it serves is a central part of the problem.

We have bad rules and insisting that sticking to them is an essential part of the solution is somewhere on the continuum between disingenuous and delusional. The rules are the problem.

We have a systemic crisis and the system needs to be changed, fantasising how we can solve the crisis without changing the system is a terrible mistake for Ireland.

This has been one depressing thread to read.

@ Colm McCarthy

The short answer to the question that you pose is no and the reason is that the ECB is not a central bank in the sense that such a term is normally understood i.e. the central bank of a sovereign state.

To quote Article 1 of the relevant protocol (No. 4 to the Lisbon Treaty); “In accordance with Article 282(1) of the Treaty on the Functioning of the European Union, the European Central Bank (ECB) and the national central banks shall constitute the European System of Central Banks (ESCB). The ECB and the national central banks of those Member States whose currency is the euro shall constitute the Eurosystem.”

BEB has explained the implications of this structure in terms of who is left holding the can for the ELA lending by a national central bank.

As Aisling points out, the ECB has a mandate to protect the eurozone banking system just as it does not have a mandate to bail out governments of Member States. One may have a view as to whether it is taking the right or the wrong action with regard to its primary mandate but this must be set in its proper context, not in terms of a particular instance in relation to a particular problem in a particular member country of the Euro Area (which, most probably, does not figure at the forefront of the concerns of the ECB).

In fact, the issue ties in with the comment of Ceteris Paribus above about the “long-standing dinner engagements” of the officials representing private bondholders in the ill-fated negotiations on PSI for Greece. It is clear that they wished to have a time-out in order to allow ministers come to some agreement at ECOFIN on the level of coupon on the replacement bonds. What the markets will make of this tomorrow remains to be seen. But it bears out the accuracy of the view taken by Trichet at what might be described the “Deauville moment”, in a very charged exchange with Sarkozy at a European Council, that taking on the markets in this way was a very foolhardy exercise.

@DOCM@Colm McCarthy

re your post of Jan 21st 2.28 pm highlighting Irish Times link to suspension of Greek discussions.

If you take a look at the photo on the Irish Times link one of the individuals appears to be the ECB guy who made some sort of half hearted attempt, at the recent “troika” press conference in Ireland, to warn Ireland about a possible risk to our “reputation” if we decide IBRC is no longer solely our problem.

IMHO it is time for some “minion” in the dept of Finance to make a short telephone call to Frankfurt re IBRC.

If “reputation” is all we need to worry about then it better be a short phone call because even “minions” are paid quite a lot these days and need to be getting on with other work. 🙂

The current situation is a classic example of the problems with a Germanic-style “governance by rules” paradigm as against an Anglo-Saxon style “governance by principles” one.

As a result you have a situation where “the rules are the rules and must be obeyed” right up to the point where

– the rules are suddenly reversed (e.g. ECB accepting junk collateral)

– all limitations on scope are ignored (e.g. Trichet writes letters to governments on Friday demanding changes in return for ECB actions on Monday)

and you end up with far less structure, coherence and pragmatism than you would have in a principles-based system.

The current rules-based approach, as embodied by the ECB for example, has certainly been hostile to the basic principles of capitalism (risk may result in loss as well as profit) and democratic governance (taxpayer money should be spent for the public good, not paying off someone else’s debts).

@BrianG@all

“The current rules-based approach, as embodied by the ECB for example, has certainly been hostile to the basic principles of capitalism (risk may result in loss as well as profit) and democratic governance (taxpayer money should be spent for the public good, not paying off someone else’s debts).”

+1

@all

I wonder if the reason given this week for “temporarily suspending” any further payments will be:
A)Pending “technical” clarification
or
B) Pending “legal” clarification.

Of course either A or B will suit the rest of us just fine as long the “clarification” takes 35 years or until the “rules” change.

Since, as a “reputable” member of the EuroZone we have already shelled out more than 3% for the Anglo/IBRC adventure, we might as well include a bit of discussion with our friends about a “rebate” pending clarification`.Such a gesture (while we all await clarification) of good will would probably do wonders for the “reputation” our friends in the ECB. 🙂

@aisling

Question two – If there is an Aid under question one, can that aid be justified? In almost all Irish bailout cases to date the answer has been yes under the criteria for crisis management laid out in the rules.?

At this stage, given that there would be no banking system in Ireland without the donation of somewhere between thirty and fifty billion euro of public money and that Ireland is faced with an arguably unsustainable debt burden which may bring down the sovereign (and therefore the banks) I think it would not take a legal mastermind to argue that the banking crisis is ongoing and therefore that further exceptions to rule one (“Firstly ye shall distort no market, even if the market would not exist without massive public aid.”) are in order.

The law is not just there to protect private property and an imaginary free market.

@Paul Hunt

So you may lament the failings and desires of these politicians as much as you want and you may lament the impact this is having on Ireland, but these are the politicians EU voters have elected in free and fair elections – and the officials they have appointed.

We agree on the the tremendously negative effect of financial capitalism coddling on the current EU (and it was a global financial crisis that kicked our little nightmare off) but I do not recall electing Angela Merkel and nobody elected Jean Claude Trichet – though there may have been a straw poll among the heads of European banks.

The last three and a half years demonstrates that there can be no solution to Europe’s ongoing crisis without confronting the utter brokenness (and baked in political dogma) of the European Union institutions and political arrangement – we can not just say that we need to accept the current democratic consensus when it has pretty clearly been thoroughly subverted (back to “Super” Mario Monti and Donkey ECB).

@ DOCM

“How many Irish bonds is the ECB holding?”

C.€20bn

The difference, of course, is that their holdings of Irish bonds are not all that far from flat p/l right now…

@ BEB

I presume that this reflects the dramatic decoupling of Irish spreads from those of Portugal over the past weeks.

@ All

FYI

http://online.wsj.com/article/BT-CO-20120122-703315.html

Schaeuble has, predictably, said that there will be no increase in the €500 billion ceiling on the ESM and that recent auctions have demonstrated that there is a return of confidence to the markets (!).

Coincidentally, Lagarde is looking for an extra €600 billion for the IMF. Wolfgang Munchau is on the case.

http://www.ft.com/intl/cms/s/0/6ccb8e40-4364-11e1-8489-00144feab49a.html#axzz1kDG9WeKx

The IMF as no more a monolithic organisation than the ECB. It is dominated by the same players. It simply provides a different, and perhaps more congenial, forum. (The UK seems incapable of making up its mind in the matter and, having played dog in the manger in Brussels, now seems intent on doing the same in Washington).

@DOCM:

If there is a ‘…legal treaty mandate…’ requiring the ECB to force an insolvent government to repay unguaranteed creditors of bust banks which have been closed, I would appreciate a reference.

The rest of your most recent comment is a kind of Nuremberg defence, or Buckpassers’ Charter. The central bank in a system enduring a financial crisis has a responsibility to lead the debate on how it might be addressed, whether or not it says so in some treaty. I agree that they have stretched some limits. To leave reform proposals to the ‘…governments and peoples of the Member States…’ is dereliction of duty.

@ DOCM

I reckon they own a similar amount of Portuguese bonds as Irish, certainly same ballpark, and the bulk of the buying of both was actually in Q2/Q3/Q4 2010. Real international money buying, shorts/underweights (which most people don’t realise) covering the amazing H2 performance, and solid domestic interest has been the dynamics behind continued decoupling of Irish vs Portugal in recent months.

According to Leo the Troika told them that ” a bomb would go off in Dublin” if we didn’t pay out the bondholders in Anglo next Wednesday.

Curious form of words for ” official lenders”.

Financial terrorism ???????

@Bond Eoin Bond

The solid domestic demand you mentioned regarding Irish bonds I presume means the banks… That would tie in with the NYT article posted earlier which said that the three year money was made available by the ECB on the understanding that the banks would support their sovereigns.

BTW, any thoughts on the reduction in deposits at ECB in the last few days…I noted about 120 b reduction… That’s some amount for bond buying..no wonder yields are tightening for the endangered countries.

@ CP

“BTW, any thoughts on the reduction in deposits at ECB in the last few days…I noted about 120 b reduction… That’s some amount for bond buying..no wonder yields are tightening for the endangered countries.”

It’s a meaningless number which will gradually increase again as we move through the ECB maintenance period (about a month or so), before dropping down again. Absolutely zero knowledge on banks buying government bonds can be gleaned from the figures, it’s perhaps the most widely misreported and misinterpreted number out there right now, it’s scale is purely related to the amount of ECB liquidity out there, they will move in tandem with each other.

@Colm McC the test is not actual competition, it is a “threat to competition” and I don’t think you can, in good conscience suggest that so long as one entity with an asset book is funded with free money while all entities with comparable asset books are funded partly with cheap money and partly with expensive money there is no threat to competition.

Cost of funds is a relevant consideration to every business. So long as IBRC has an asset book in any way comparable to other players in the Irish market (or potential players were they to acquire that book from an existing player) the threat remains. It may strike you as logically daft, I’m not disputing that element, I’m just pointing out that once it is possible to identify any potential threat the onus then shifts.

In relation to the role of the ECB it is, unfortunately, hard wired into the treaties to make the ECB BuBa in disguise. One of the most disappointing elements in, as you so succinctly put it the d[r]aft treaty is the lack of proposals to deal with this. A watering down of the rules on LOLR would be great, even if restricted, but an introduction of a US style “employment” mandate along side the all holy “price stability” one might actually make a difference… To suggest that any treaty change which effectively leaves the role of the ECB untouched in any meaningful way can fix this really is daft.

There’s never been a financial crisis with a Central Bank governed by supranational law (dictated by the irrational fears of one people) before alas. Shame when they drafted it everyone thought that BuBa was the bees knees so no one thought to seriously question that design for a European institution.

@Bryan I agree that there has been one crisis and that there have been many incremental solutions. However I challenge you to point out one instance where the State Aid was blessed on the consideration alone of the benefit to the Irish taxpayer? That’s not in the rules, it is not a carve out permitted. The State Aid rules would be rendered entirely toothless if the sole benefit to a domestic electorate could render an aid compliant.

The carve-out used throughout was to remedy a serious disturbance in the domestic economy. Changing the terms on which IBRC can access CBI ELA would have limited impact in this regard, the intended benefit is a longer term one to the sovereign’s balance sheet, and one which requires a seismic change to the aids approved by the Commission to date all of which have required aids to be more expensive and not less expensive than the comparables.

Which still misses the point that the major issue here is not Art 107, it is Art 123. But if you try to avoid a Art 123 issue you have to be prepared to run foul of Art 107 and absent any fresh need for cash by IBRC (rather than by a need to deleverage the sovereign) this is going to be a major stumbling block.

@ Aisling

BUBA was the bees knees because it was governed by the law of a sovereign not supranational law. The status of the sovereign is the key element (as the debate on which law – Greek or UK – governs bond issues in the context of the Greek PSI negotiations reveals).

As there is no political appetite to turn the EU into a sovereign state, some form of stable half-way house has to be worked out. I think that the Euro Area is stumbling towards such a solution (which will have to include the IMF as it will provide extra buttressing).

Time is now of the essence. If Hollande’s programme is to be taken seriously, it will be a case of Back to the Future if he is elected i.e. a possible repeat of the disastrous early Mitterand years. This scenario is not confined to France!

@Aisling

You continue to argue from first principles, while ignoring the realities of what decisions have already been handed down. The issue is not whether the sole beneficiary is the Irish taxpayer, but whether the overall objectives can be furthered, with one of those being financial stability. The Commission have already accepted that minimizing the cost to the taxpayer is an objective the IBRC entity that they approved.

You appear to be ignoring or mixing up the two interest rates involved – the one charged by IBRC to the government (a), which represents the main portion of the interest payments, and the interest rate charged by the CBI to IBRC (b). One is on the asset side and the other is on the liability side. I have never argued that the CBI rate to IBRC should be lower than the ECB base rate. You have failed to provide evidence that reducing (a), or reducing (b) but keeping it just above the ECB base rate, would cause a spillover effect for other banks in Ireland. This is all simply money the government is borrowing to pay back to itself at a future time, but is incurring costs in doing so.

So if the impact of the change would be to reduce the stress on the financial system (of which the sovereign is a big part) and there is no evidence of negative spillover effects, what is the problem?

@Aisling

but the plan envisages no new aids in the sense of tens of billions of free cash

Perhaps you would care to explain where any of the proposals on restructuring the PN interest payments involve “tens of billions of free cash”?

@Aisling

I don’t see such a clear distinction between the ELA on the one hand, and the PNs on the other. The PNs form the bulk of the collateral on which the ELA was granted, and hence the repayment schedule for the PNs and the ELA are tightly linked. The Commission has already granted an interest holiday on the PNs, and so has set a precedent there.

For better or worse, the State Aid rules have been pushed into service as a form of EU-wide proto-bank resolution scheme. This is not my view but that of the Competition Commissioner:

In essence, the Commissioner expressed the view that while the application of the state aid rules cannot replace a fully-fledged regulatory framework for crisis management, it will continue to serve as a resolution tool until such a framework is in place.

That is the context in which everything needs to be placed. It isn’t 2007 any more.

@ Joseph R

German banks are not believed to be using ELA. Only Irish, Portuguese, Greek and maybe Belgian banks are thought to be accessing these facilities, and the Irish and Greeks are the super-users.

@ Paul Hunt

‘I think what some people might learn from all of us if that, if the entire domestic banking system of Germany or France (and, yes I know they are hiding considerable bank insolvency as it is) had gone in to meltdown like Ireland’s on 30 Sep 2008, the rules of the relevant EU institutions would have been changed in short order’

+1
Power and influence are exercised through the expedient adjustment of procedures/regulations. As the sociologist Pierre Bourdieu puts it, the powerful maintain their position by continually adjusting their stance. Naive epxectation of ‘fair treatment’ won’t get us very far.

We’re in financial doo doo and sinking fast 🙁

@Paul Quigley,

Indeed. What most people seem to forget is that the EU’s initial starting point was to ensure the great powers in Europe were prevented from ignoring the rule of law and democratic consent and. thereby, in pursuit of the ambitions of the deluded or megalomaniac, wreaking havoc on all. And this was achieved by requiring the pooling of some sovereignty, under effective democratic governance, to develop arrangements for a common market based on the principles of competition, co-operation and solidarity that would further economic prosperity and well-being.

The requirement for restraint on the powerful for the benefit of all was forgotten during the ‘Great Moderation’ – which was far from moderate as it was based, in the core, on ‘wage repression’ (though not in the PIIGS). The requirement for this restraint using the Community approach has surfaced once again during this crisis, but it is only the veterans such as Jacques Delors and Helmut Schmidt who seem to have any idea of what is involved.

And Ireland, unfortunately, has placed itself in such an exposed position that it is taking a hit while this existential confrontation is being played out in the corridors of power. I remain convinced that those who stride these corridors would if they could provide some relief to Ireland with regard to the implications of these darned promissory notes and the liquidity support them have secured. I am reasonably confident that they are aware, as Colm McCarthy puts it, that withholding this relief is playing into the hands of the purveyors of snake-oil in Ireland – and, thereby, undermining governability in Ireland. But, for the process of institutional and procedural reform that is taking place in the EU to reach a successful conclusion, the Community method must take precedence over the immediate re-election objectives of leading politicians and it must secure broad-based democratic consent. Given the enormity of what is at stake, it is perhaps not surprising that there is little interest in diverting resources and effort to craft what, in essence, would be an EU solution to an Irish problem. And there is a risk that a decision on some exceptional arrangements might undermine the overall thrust of the main effort. In addition, it is complicated by the political grandstanding on Ireland’s use of taxation policy (as one instrument among many) to attract, from the core EU perspective, a disproportionate share of FDI in the past.

All of this is proving to be a particularly difficult circle to square. And, as I keep emphasising, it will be a long drawn-out process. The Irish purveyors of snake-oil are an Irish problem. It is for Irish politicians and the Irish people to expose the snake-oil for what it is. It is not for other EU politicians or officials to enter in to what would possibly be ad hoc, exceptional arrangements to deprive these snake-oil merchants of some purchase on Irish public opinion. But they do have an duty to craft a resolution to this problem in the context of the overall programme of instutional refrom being pursued.

@Overseas Commentator,

Thank you. However, you have no need to remind me of this. But I am very pleased you have brought it to the attention of others here.

@Aisling

State aid given “to make good the damage caused by natural disaster or other exceptional occurrences” is automatically exempted under Art 107(2)(b)

I think we are all aware of how wide the interpretation of this phraseology has already been stretched

I don’t think many countries will want to see the meaning of “other exceptional occurrence” litigated and interpreted before the ECJ!

There is of course the other non mandatory exception, Art 107(3)(b)

“aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;”

The promotion of EC financial stability seems such a project and does seem that we are experiencing a serious disturbance to our economy.

Well, Michael Noonan is meeting Mario Draghi tomorrow (for ‘talks on Irish banks’) so perhaps they will get round to discussing this thread then.

@Paul Quigley,

I agree that there are no clean hands in any of this from start to finish, but those who are elected to govern – and those they appoint to implement governance – have a duty to have the least dirty hands.

@Minister Noonan Olli Regn Mario Draghi

Kiel Institute ….. Ireland needs, badly needs, simply must have, a reasonable hair-cut – Kiel reckons 30% ~€50 billion.

http://www.spiegel.de/international/europe/bild-810806-307316.html