Interest Rates on Promissory Notes Not the Key Issue

I am now planning to talk at Friday’s conference about promissory notes, ELA and all that. I will post a link to a detailed presentation when it’s finished, so I don’t want to spend a lot of time on this now.

However, I do want make a brief comment on the recent media commentary on the promissory note issue. Most of this commentary has motivated the issue in the same terms as this article in today’s Irish Times by Arthur Beesley:

State support for the bank is being financed with expensive promissory notes which carry a comparatively high interest rate of some 8.6 per cent.

This is considerably in excess of the prevailing rates for stability facility loans, leading the Government to explore whether it is feasible to draw down additional stability fund aid to replace the promissory note scheme.

Arthur is a fine journalist but I’m afraid this is not a good way to think about this issue. The interest on the promissory notes is going from one part of the state (central exchequer funds) to another (the IBRC). Since the interest rate on these notes is higher than the average interest rate on IBRC’s liabilities, the additional margin can be retained inside IBRC and handed back to the state at a later date. 

So the key issue in relation to the burden on the taxpayer of the IBRC is the amount of liabilities that need to be paid out to bondholders and central banks, and the timing of these repayments, not the interest rate on the promissory note.

I’d note that Arthur’s colleague, John McManus, correctly explains this aspect of the promissory note issue in this article (though other parts of the article are not correct, such as the claim that the Central Bank of Ireland had to borrow the ELA funds from the ECB and that the ELA needs to be collateralised by marketable assets.) The true interest cost of the promissory notes is the interest on the €3.1 billion a year being borrowed from the EU and IMF to hand over to the IBRC, not the notional interest rate on the promissory notes.

91 thoughts on “Interest Rates on Promissory Notes Not the Key Issue”

  1. @ Karl

    vis a vis hitting Troika deficit targets, the interest rate has a small impact though, right? Cos the Anglo “profit”/spread etc will not be paid back in this year, for instance? So maybe 1bn or so in terms of annual exchequer deficit, if you reduced down to 3% vs current 8%?

  2. “So the key issue in relation to the burden on the taxpayer of the IBRC is the amount of liabilities that need to be paid out to bondholders and central banks”

    Is there any transparency on who the bondholders of the IBRC are? I get the impression the ECB must hold a good chunk of the paper in issue given their extreme reluctance to consider any haircuts.

  3. @ BEB

    I’ll have a lot more on this in Friday’s presentation. But yes the interest rate does matter for the measurement of the GGB by Eurostat, even if it doesn’t really change the cashflows or the ultimate cost of the IBRC bailout.

  4. @Karl Whelan

    I am interested in the answer to a question related to ECB bond buying that you might be able to answer at the conference.

    When the ECB purchase Irish bonds at a steep discount, who gets to keep the ‘extraordinary’ profit when (or if ) the Irish Govt repay the bonds? Or indeed when the ECB sell these bonds back into the market?

  5. @ Joseph

    at this moment in time the ECB gets to keep the profit, although there has always been a suggestion that this would be very difficult to justify in the long term. However, due to the maths involved, the ECB seems likely to be forced to have some sort of participation in the upcoming Greek PSI deal. It has been suggested they may sell the Greek govt bonds they own back to the Greeks at the price they bought them at (probably 65-70 cents on the euro average, vs 25 cents market price and likely 65-70% NPV haircut for private holders).

  6. @ DavidG

    I would suggest that that list was originally reasonably inaccurate at the time, and even more so at this point.

  7. @Karl

    you may be interested, in relation to Art 107, and in particular Art 107(2)(b) (ex Art 87(2)(b))

    OJ 2000 C28/2, section 11, &

    Atzeni v Regione autonoma della Sardegna [2006] ECR I-1875 at para 79-82

    Under this exception all a country need do is notify the commission provided the aid does in fact fall within the exception

    In relation to 107(3)(b)

    See AITEC v Commission [1995] ECR II -1971, para 113 -132 and the related commission decisions.

    The commission approved state aid and associated reorganization of state companies where the crisis in the Greek economy went beyond any one sector

    See also Heracles OJ 2000 L66/1

  8. @Bond
    If you know what the names were at the time – tell us why don’t you.
    Its the least we can ask for in this privatised money system without any rule of law.
    As even 19th century tenant farmers knew who their landlords were ?

    The fiction of Independent republics will at least die at that point.

  9. @Bond If you have better or more uptodate info then please let us know. After all we should know who we are paying these amounts too.

  10. Karl,

    If the ELA is an other asset on the CB Balance Sheet, what is the corresponding liability. I guess that is the what McMAnus was getting at. The presumption that the CB was borrowing from the ECB at 1% to lend to the IBRC at 3%.

    Does the CB have a liability?

  11. @ Tull

    Really, the CBI are not borrowing from the ECB.

    The truth is that the term “liability” needs to be used fairly carefully when it comes to central banks.

    Central bank “balance sheets” show, on one side, the assets that the CB has acquired when purchasing securities or making loans in open market operations.

    The other side of the balance sheet shows the amount of money they have created to acquire these assets. Tradition in this part of the world is that this side of the balance sheet is labelled “Liabilities”.

    So what’s the liability incurred by the CBI when it created the ELA? The answer is that money it magicked out of thin air is considered a liability of the CBI.

    And when it take in repayment of ELA from the IBRC, it is un-magicking the money. When it’s all done, the operation will not have resulted in any extra money having been created and hence no monetisation of ze debt, which as we all know is a very bad thing.

    Enough for now. More on this on Friday.

  12. @ Tull

    the “Other Assets” are matched to a large degree by “Other Liabilities”. CBI as opaque as ever.

    “Other liabilities” have gone from 18bn at end 2007 to 138bn at end 2011, so +120bn. ECB liquidity + Other Assets at CBI have increased from 44bn to 151bn, +107bn. Is this where Target balances kick in??

  13. @ karl or Eoin Bond
    Is one of the quirks to the way the bonds and interest is to be repaid be that IBRC will show a paper loss to the state in ten years time lower than what it actually was?

  14. re Karl: “So the key issue in relation to the burden on the taxpayer of the IBRC is the amount of liabilities that need to be paid out to bondholders and central banks, and the timing of these repayments, not the interest rate on the promissory note.”

    Agree the key issue is the amount of liabilities, but its not the timing. Timing only comes into it when you have agreed to repay. Agree to repay, get punished by the markets, it becomes legacy debt that is a sword of Democles drag on the economy; plus its really not very smart to do that 🙂 The interest rate is of key concern but because the debt should not be repaid, I’ll not comment on that aspect.

    Bottomline we need to bury the total amount of liabilities of IBRC and take it off the sovereign book. Best way is to follow the Morgan Kelly advice and give it back to the ECB
    along with its debt and allow the ECB to deal with it.

    Negotiations today should go further than seeking relief from the PN total of ELA to the tune of ¢42 bn, all of it…but, for the moment, I’ll concentrate on the imminent national disgrace or national hypocrisy day or national treason day ( read Gilmore in link above on the treasonous
    betrayal … ).

    Its become quite easy for the Troika to give an improved deal for Ireland. A large portion of the EFSF is now in place.
    So, without having to go down the burn bondholders road,
    and follow the Greek precedent; other opportunities abound for the troika to attempt to fix the Irish economy.

    They could pay the Anglo bondholders out of the EFSF costing near ¢29bn; or, they could set up a SPV funded by the EFSF again the take the debt from the Irish sovereign and pay it off bit by bit building into the contract extended Karl maturity dates or other terms; they could even set up an AngloInsurance Hedge Fund and float it off as a CDO and sell it back to the financial markets, might cost them less annually to fund than the ¢1.25 bn we’re stuck with.

    Whatever happens, that ¢1.25 bn representing odious debt that is a betrayal of the Irish people, should not be paid whether by an economic management committee, or by an economic mismanagement committee !

    The real tragedy in all of this is the apparent inability to switch even the Anglo ¢29 bn bill whose annual costs are crippling this country over to EFSF, which would only cost a couple of billion to the EFSF annually; given the fact that EFSF could even generate a profit like NAMA (bad comparison)

    Good to see Namawinelake in good form today: http://namawinelake.wordpress.com/

    “…grandly-titled “Economic Management Council” consisting of Eamon, Minister Noonan, Minister Howlin and An Taoiseach Enda Kenny.

    Tomorrow on 25th January, 2012 Anglo – a bank that is insolvent save for IOUs signed by former Minister for Finance, the late Brian Lenihan and accompanied by some murky “letters of comfort”, none of which was brought before the Oireachtas, the parliament of the country, for oversight – will pay €1,250m of our money to bondholders who are unsecured (that is, they don’t have any charge over any specific asset in Anglo) and unguaranteed (that is, not benefiting from the September 2008 guarantee that has expired). Anglo is a defunct bank, that doesn’t take deposits – having sold the majority of its deposits to AIB last year, retaining only modest sums that are connected with legacy loans – or advance new lending. It exists to wind down and work out its legacy loans which were not transferred to NAMA and its bonds are now, according to Minister Noonan, “what has become speculative investment”.

  15. Karl,

    While there may be profit coming from the ICB. I have my doubts about whether the “interest profit” from Anglo will ultimately accrue to the state. It was always my understanding that this capital, the P notes, must bear interest just as if was €31 bn of cash or government bonds sitting in the banks account.

    Dept of Finance already said if the government attached a zero rate to the €31 bn of promissory notes this would not have been sufficient to meet the regulatory capital requirements as set down by the Financial Regulator and an increase in the face value of €31 bn would have been required to satisfy these requirements.

    As such if you reduce the interest rate the nominal face value has to increase. So if the interest rate wasn’t really an issue then we could simply charge 0 and just pay off the capital over ten years but because this would result in the banks needing additional capital we can’t.

    I think reducing the interest rate is irrelevant not necessarily because it is going around in circles and we will get it back but because we would need to increase the face value of the notes if we did reduce it. The high interest rate is simply an accounting trick to keep the total value of capital required off the GGB.

    Now if Anglo has remainnig capital when it closes, the state may get it back but that is not likely to happen any time soon.

  16. @ Karl 2:49

    Re “So what’s the liability incurred by the CBI when it created the ELA? The answer is that money it magicked out of thin air is considered a liability of the CBI. ”

    Re “Really, the CBI are not borrowing from the ECB.

    The truth is that the term “liability” needs to be used fairly carefully when it comes to central banks.”

    Karl, I don’t wish to be naughty and disagree with you there, even though I do disagree with you:-) So I’m asking you to tease this out some more as I believe you have this wrong, but please correct me if I’m rong:-)

    I agree technically the CBI is not borrowing from the ECB. But its important to understand money is not magicked out of thin air especially in relation to ELA and even more so when ELA is used to target distressed assets.

    The key point you leave out is that if ELA has not a mechanism in place for the PN issued through the ELA programme, to be refunded; then, the ECB has clearly stated those ‘losses’ (note its using the word losses, not magic dust) must be shared by other CB’s.

    In other words, there are contingent liabilities attached to the ELA programme, the PN issued by the ICB, and the ECB wants its money back!

    But correct me if you think I’m wrong; I’ll resurrect the documents supporting that view of mine there 🙂

  17. @ Patrick

    I hate to say this but the interest rate aspect of this thing is pretty complicated.

    The intra-government nature of the transactions means that the ultimate cost just the €31 billion in principal to be repaid (and the interest cost of borrowing that €31 billion).

    If you cut the interest rate and raised the interest rate on the notes, it wouldn’t matter in the end. Once the €31 billion was paid off, we could keep the extra money that had been put inside IBRC, whether in the form of principal or interest.

    I’d note also that it’s not really clear that the IBRC now needs to obey regulatory capital requirements. Its remaining ECB loans can be repaid, its banking license can be taken away and it can be turned into a sort of ELA-repayment workout vehicle that has a permanent waiver from regulatory capital requirements.

    Ok, that’s my last reply on this thread. Work to do.

  18. Ok, very last reply

    @Colm B

    “the ECB has clearly stated those ‘losses’ (note its using the word losses, not magic dust) must be shared by other CB’s.

    In other words, there are contingent liabilities attached to the ELA programme, the PN issued by the ICB, and the ECB wants its money back!

    But correct me if you think I’m wrong”

    Yep, you’re wrong. Money magicked up by CBI not borrowed from ECB. No loss-sharing with other CBs. Any CB losses to be made up by DoF as promised in not-legally-binding letters of comfort.

  19. @ Patrick

    i believe the interest rate is only an issue if you want to put “fair value accounting” on it v-a-v where it would trade in the market. To do this it had to have an interest rate equal to the similar Irish government bond out there (i have frequently called this a form of Irish government bond). But there are many ways around such accounting conundrum, mtm vs hold to maturity just one example. So the interest rates themselves arent the issue, its whether you can use another form of NPV-ing to get it back to par that is the question.

  20. Aside from whether or not a change in the variables will benefit the State’s financial positon, how confident are commentators that every cent of the interest payments would make their way back to the Government finances?

    Somebody mentioned the prospect of IBRC needing redundancy monies in the near future for example. I know the stress tests said no more capital would be needed of course.

  21. In fairness to Arthur Beesley, he is reporting a consistent line being fed by D/Finance. It begs the question of what their real strategy is.

  22. “They could pay the Anglo bondholders out of the EFSF costing near ¢29bn”

    @ Colm Brazel

    This seems to be the best solution from an Irish taxpayer’s perspective but you really have to ask, why would any other EFSF country agree to it? I cannot see the Germans or Finns agree to recapitalise the IBRC with EFSF funds.

    In reality if the Irish government does manage to agree a restructuring of the PNs the outcome is likely to be far less beneficial to Ireland. As long as we are in the troika official funding programme, we really are not in a strong bargaining position.

  23. IBRC (= Anglo + Nationwide), along with all the other banks, lost the capacity to make up whatever final-salary pension deficits were on the liability side (or buried in a footnote to the accounts) when they went bust.

    On re-capitalisation, they have been placed in a position to meet these obligations. So whatever is left in IBRC will be available for this noble purpose, before anything goes to the state.

    Anyone remember what happened to pension scheme members in Waterford Glass? It went bust, and they lost their pensions. The state declined to bail it out. Too costly.

  24. Hi Karl

    If I understand what you are saying then the various people who briefed me are incorrect – or I misunderstood them – and the CBI is not lending on ECB money to Anglo, but is creating the money itself.

    There are a couple of interesting issues in this – from a journalistic perspective at least.

    The first is that it appears to contradict the general presumption that Ireland can’t print money even if it wants to in order to finance itself. If we can then why is the CBI not buying Irish bonds etc?

    The simple answer is that CBI can only create the money the ECB lets it create and its uliimately the ECB’s money.

    This would appear to be supported by the ECB’s demand that there is a government guarantee behind the ELA and its agitation about the amount of money advanced to the Irish banks under ELA.

    This we were told was one of the reasons we took a bailout, which has deleverging of the banking system and repayment of ELA as one of its goals.

    Whether or not the ECB makes a turn on all of this is not disclosed, but i was told it did.

    Disclosure of course would clear this up.

    John

  25. @Colm McCarthy

    Further to the above.
    Pension law has still not been amended.
    A person can still pay into a company pension fund all his life as the people in Waterford Glass did, and if 2 days before he is due to retire the company pension fund goes ‘bust’ he gets nothing. Diddly squat.

    The person who worked all his life beside this man but retired two days before him, before the pension fund went ‘bust’, continues to get full pension, albeit with no ‘inflation’ adjustment.

    PS. This piece of equitable and legislative genius is within the remit of Minister Burton’s department.

  26. Given that the Irish government gave letters of comfort to the ICB and implicitly to the ECB over the ELA, I think its fair to say that not repaying the Anglo Irish Bank bondholders tomorrow would in fact be burning the ECB which is unlikely to be a smart move.

    I suppose you could pose the argument of calling the ECB’s bluff. After all, if the ECB were to take drastic action such as to cease LTRO lending to Irish banks or perhaps more likely suspend future loans to the Irish government under the bailout agreement then it could spark a major crisis in the Eurozone which is not in the ECBs interest.

    Would you like to be the minister making that call though? To unilaterally break the terms of our agreement with the ECB and spark a crisis in Ireland and potentially across the Eurozone.

  27. Ok, back able to comment again.

    @ John Mc.

    “If I understand what you are saying then the various people who briefed me are incorrect – or I misunderstood them – “

    Well, yes, that can happen, particularly when the topic is as fiendishly complex as this one.

    In relation to your other questions, this parliamentary answer from Michael Noonan

    http://debates.oireachtas.ie/dail/2011/11/22/00083.asp

    sets out the two relevant legal issues:

    “The Central Bank Act 1942 provides the statutory basis for the Bank to provide emergency liquidity assistance. Section 5B(d) provides the Bank with a general power to lend against security to credit institutions, which power may be exercised in pursuit of the Bank’s financial stability objective provided by Section 6A(2)(a) of the 1942 Act. Regarding the functions carried out by a NCB, other than those specified in the Statute, I would draw attention to Article 14.4 of the following:
    http://www.ecb.int/ecb/legal/pdf/en_statute_2.pdf“

    which is the ECB statute.

    Article 14.4 of this statute states:

    “National central banks may perform functions other than those specified in this Statute unless the Governing Council finds, by a majority of two thirds of the votes cast, that these interfere with the objectives and tasks of the ESCB. Such functions shall be performed on the responsibility and liability of national central banks and shall not be regarded as being part of the functions of the ESCB.”

    So, there’s your answer to “appears to contradict the general presumption that Ireland can’t print money even if it wants to in order to finance itself. If we can then why is the CBI not buying Irish bonds etc?”

    We can only print money via ELA to lend to credit institutions for financial stability purposes.

    And second, Article 14.4 essentially means that you are essentially correct that “CBI can only create the money the ECB lets it create” — a two-thirds Governing Council majority can stop the CBI doing whatever it wants. At the same time, that is still a different thing from CBI having to borrow the ELA money from the ECB at some interest rate, which is not happening.

    Anyway, the above was not meant to be too critical. It’s a complicated area and your article was the most useful discussion of the promissory note interest rate issue that I have seen.

  28. Hi Karl,

    Thanks for responding to my question there. I cannot find the doc which stated that losses incurred through ELA will have to be born/absorbed by other CB’s across the NCB’s..but I’ll keep a look out for it, in my notes.

    bearing in mind:

    http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2006:321E:0001:0331:EN:PDF

    Article 101 1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.

    2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the ECB as private credit institutions.

    http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000222630.pdf

    within the Eurosystem “Co-ordination mechanisms are primarily called for within the Eurosystem. This is the case for emergency liquidity assistance (ELA), which embraces the support given by central banks in exceptional circumstances and on a caseby-case basis to temporarily illiquid institutions and markets. At the outset, it is necessary to stress that the importance of ELA should not be overemphasised. Central bank support should not be seen as a primary means for ensuring financial stability, since it bears the risk of moral hazard. Preventive measures aimed at fostering the adoption of sound risk management practices on the part of financial institutions, and the effectiveness of prudential regulation and supervision in achieving this goal, are the first line of defence against excessive risk-taking behaviour and financial distress. Furthermore, the provision of ELA has been a very rare event in industrial countries over the past few decades, while other elements of the safety net have gained importance in the management of crises. However, if and when appropriate, the necessary mechanisms to tackle a financial crisis are in place. The main guiding principle is that the competent NCB takes the decision concerning the provision of ELA to an institution operating in its jurisdiction. This would take place under the responsibility and at the cost of the NCB in question. Mechanisms ensuring an adequate flow of information are in place in order that any potential liquidity impact can be managed in a manner consistent with the maintenance of the appropriate single monetary policy stance. The agreement on ELA is internal to the Eurosystem and therefore does not affect the existing arrangements between central banks and supervisors at the national level or bilateral and multilateral co-operation among supervisors and between the latter and the Eurosystem. However, their smooth functioning assumes an ability to implement, swiftly and efficiently, co-ordination mechanisms aimed at dealing with the cross-border implications of financial crises and at preventing contagion.” Source: ECB (2000). Annual Report 1999, p.98.

    “RE: “But correct me if you think I’m wrong”

    Yep, you’re wrong. Money magicked up by CBI not borrowed from ECB. No loss-sharing with other CBs. Any CB losses to be made up by DoF as promised in not-legally-binding letters of comfort.”

    Yes and no 🙂 I would be wrong if I was saying the ICB was borrowing from ECB. Never said that. What I meant was, see earlier posts of mine when I specifically compare the transaction of ELA to “Loan Approval”. ICB must have this loan approval and it must act within the statutes guiding the setting up of the ECB under the european treaty eg Article 101, articles 1 and 2 debated on earlier posting.

    The ICB doesn’t act unilaterally, it must act guided by the
    ECB and the proper functioning of the monetary system. As far as I know, the ECB itself is funded to ¢ 5 bn only.

    So though you are correct and are backed up by:

    see above, “The main guiding principle is that the competent NCB takes the decision concerning the provision of ELA to an institution operating in its jurisdiction. This would take place under the responsibility and at the cost of the NCB in question. ”

    The above is followed by the caveat I have been drawing attention to from the beginning:

    “However, their smooth functioning assumes an ability to implement, swiftly and efficiently, co-ordination mechanisms aimed at dealing with the cross-border implications of financial crises and at preventing contagion.”

    So, ICB can hand out the gold through ELA, but its the ECB wizard and the ECB governing council and the whole paraphernalia of politics, Troika, managing inflation, prices, that follow agreed procedures for debt management that have ultimate control.

    I do stand corrected on one point though, thanks for correcting me 🙂 It is the ICB that issues the ELA as well as the PN. I did incorrrectly, believe the ELA was issued by and held, by the ECB.

  29. @ Colm

    “It is the ICB that issues the ELA as well as the PN”

    No, the Irish government issues the PN.

  30. @ Carson,

    Re “This seems to be the best solution from an Irish taxpayer’s perspective but you really have to ask, why would any other EFSF country agree to it? I cannot see the Germans or Finns agree to recapitalise the IBRC with EFSF funds.”

    That’s a very good question. Fortunately, there is a very simple answer: der euro ist fertig! You see the euro is finished if this is not done. The sinking of this economy is
    100% assured if not done, no question about it. Plus we get to bring down the euro, Anglo takes them down as well. I won’t mention moral hazard and the principle of no bank must fail; socialism for banks the EMU is veering towards against free capitalism and lets liquidate bad banks as well.

    I would prefer the euro to sink into oblivion rather than be faced with economic destruction of the Irish economy brought about by a useless EMU house of cards ready to fall.

    Remember, lots of our ills are directly attributable to a badly designed euro project. Our banks should have been better regulated by the ECB. The Greenspan era unfortunately was the mantra that allowed the financial world to have a huge party when the parents were away:)

    On the off chance the euro might be fixed and survive, we need a credible bailout based on some form of burden sharing/debt writedown; if this is not forthcoming, its just more mess coming from the mess that went before.

  31. @ Bond

    Re ” “It is the ICB that issues the ELA as well as the PN”

    No, the Irish government issues the PN ”

    No harm in pointing that out. Indeed the Irish government issues the PN, however it it the ICB that prints the money that has been guaranteed by PN, which is what I meant 🙂

    Though you would think the Irish government had the money themselves to pay for it 🙂

  32. http://en.wikipedia.org/wiki/Anglo_Irish_Bank

    On the eve of the proposed handing over of ¢1.25 bn we should recall Anglo above ….

    “Minister issued of a promissory note for €8.3 billion on 31 March 2010, bringing the government’s investment in Anglo Irish bank to €12.3 billion. ”

    Thereafter, the cuckoo debts grew and grew….and the same ones responsible for managing the Anglo mess are managing the mess tomorrow….:-)

    Good evening y’all.

  33. While ELA for lending to governments is verboten, 3-yr LTRO for lending to banks that then lend to governments is now both allowed and encouraged at EZ-level (via the ‘Sarkozy’/carry trade).

    So if Ireland and 5 other like-minded countries got together they could all institute “national LTRO” schemes, that created money, lent it to national banks for junk collateral, which then bought government bonds, which were then used as collateral in further rounds of this “national LTRO” scheme.

    Problem solved?

  34. @ Bryan G

    the ECB mantra has changed under Draghi. He’ll push it as far to QE as he can. The stigma of “addict banks” (cf Trichet) is now over. While your suggestion is outlandish, its not THAT outlandish under the current ECB. Market is expecting another €500-750bn take up in Feb’s LTRO.

  35. @ All

    The key issue in relation to the PN is that Ireland is not Zimbabwe (yet!).

    The subject itself can be made as complicated or as simple as one wishes. For the simple explanation, the comment by Patrick above is recommended.

  36. @B.E.B

    Outlandish? I think it’s very good 🙂

    It’s time the tables were turned. After all, it is just doing at the “EZ-6” level what has been decided as a good thing at the EZ-17 level.

    The only rule it breaks is the rule that the rules only get changed when the core EZ countries are in imminent danger and decide that they would be better off if the rules were changed.

  37. I think the most shocking Irish statistic over the last 10 years or so is the depreciation of assets to pay off malinvested credit expressed by machinery & transport equipment imports.

    Y2001 : 30.177 Billion Euros. (Peak)
    Y2010 : 12.273 Billion Euros.

    Of this the most shocking segment is office & data processing machines.
    Y2001 : 12.196 Billion Euros (Peak)
    Y2010 : 2.682 Billion Euros

    Computers have come down a lot over the years but not by this much !! – it reflects a massive collapse of Irish Industry & consumer demand me thinks.

    I think something very fundamental happened here – especially with growing wage competition and subsequent wage export , the banks responded to the demand vacuum by flooding the economy with housing credit – creating one of the greatest malinvestments the world has ever seen on a per capita basis.

    It looks like the Euro was the biggest calamity to hit the Irish economy since the act of Union.
    With the Housing inflation serving the same role as the Napoleonic wars inflation – covering up the gaping holes withen the fabric of the physical economy , until collapse made them self evident.

    The higher echelons of Irish society did not register this but the depression was hiding underneath this economy for a long long time.
    With more & more got out of less & less capital via agency & Ryanair type operations flooding the entire private economy.
    Its funny really – we undercut some economies in the west and then economies further east took the scraps.
    Maybe we deserved this as we started it back in 57.
    http://www.youtube.com/watch?v=EAHM9rXjdUo

    The destruction of both Human capital & the misallocation of Physical capital during these Boom Bust periods has been on a epic global scale.

    And yet there is very little debate about how the market states flowering was such a disastrous failure for the commons.
    With even technological capital development now absurdly heralded by Apple I thingies – as if this would improve ones basic life support.

  38. Ok. If we do not pay the bond and keep the money in the Anglo and they then loan it to the government to use. What can the ECB actually do? If they turn off the ELA can the Irish mint just keep printing notes to keep the ATMs full? I know it is politically and economically suicide but as is we are committing suicide slowly. Would it be just that we would get blamed for the collapse of the euro? And then be shown the door from the EU? We could join with Iceland (they seem to be much better negotiators!

  39. Bryan G
    “So if Ireland and 5 other like-minded countries got together they could all institute “national LTRO” schemes, that created money, lent it to national banks for junk collateral, which then bought government bonds, which were then used as collateral in further rounds of this “national LTRO” scheme”
    Reminiscent of how the rouble zone broke up

  40. I thought I would post the link below in relation to ECB losses in 2009. (Link first posted by Karl Whelan some time ago.)

    http://www.ecb.int/press/pr/date/2009/html/pr090305_2.en.html

    I am posting it with the following question in mind.

    At the time that Anglo went bust, which for all intents and purposes was September 28th 2009, did Anglo at that date have any loans from the ECB system that were backed by Anglo loans as collateral?

    If Anglo was availing of ‘normal monetary policy operations’ at that date (Sept 2009), then as Anglo went bust at that time, would that mean that such ‘losses’ should have been absorbed by the ECB, as per above circular.

  41. @Joseph Ryan

    The problem is that Anglo never went bust and has never defaulted (courtesy of the Irish taxpayer).

  42. @Joseph Ryan:

    You write:

    ‘Pension law has still not been amended. A person can still pay into a company pension fund all his life as the people in Waterford Glass did, and if 2 days before he is due to retire the company pension fund goes ‘bust’ he gets nothing. Diddly squat.’

    The law has been amended, at least for some. If your bank pension fund is bust, and the bank goes bust, all is well. The new law is our old friend the Credit Institutions (Financial Support) Act 2008, aka the Law of Unintended Consequences.

    If the folks who chose careers in banks which went bust had opted instead for the innocent manufacture of crystal glass, they would have lost their pensions.

  43. A very clownish performance by Gilmore today – me thinks the man has very Ceausescu like thoughts so therefore I cannot tell if he is a fool or a traitor.
    Someone better tell him any bank can create money.
    Micheal Hudson was / is bang on the ball about the modern socialist movement I am afraid.
    Watched a very auto woman type interview of the socialist Danish PM on Euro news also – I just can’t understand this juxtaposition of naives & Quislings – its all very confusing.
    Its probally always like this when structures are close to a full scale breakdown crisis.

  44. @John McManus

    Everyone has at some point been confused by at least part of this (me included). That is why the politicians are essentially lost at sea and clutching their latest departmental briefing. I suspect the reference @colm brazel cannot find, about loss sharing wiith other central banks is actually this article by Karl:

    http://www.businessandfinance.ie/bf/2011/12/commanalyde2011/timeforadealwithsupermario

    containing..

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

    discussed here:
    http://www.irisheconomy.ie/index.php/2011/12/02/time-for-a-deal-on-ela/#comment-202890

    and
    http://www.irisheconomy.ie/index.php/2011/12/02/time-for-a-deal-on-ela/#comment-202939

    and
    http://www.irisheconomy.ie/index.php/2011/12/02/time-for-a-deal-on-ela/#comment-202944

    If you dig back on this blog for references to ELA, pro notes etc you will find lots of detail, teased out that is otherwise not generally accessioble – and it is one of several topics where “sources” or “briefings” can be off the mark because somebody hasn’t thought of everything. Open discussion of this sort rather than presentation can be illuminating, if you can (and can be bothered to) sift through and filter out the wordy but confused contributions.

    Arguments about the “legally binding”-ness of letters of comfort over ELA, the sovereign default-ness of deferred repayment of the pro notes, and the question of how the ICB would value pro notes with lower interest rates or longer repayment terms (for ELA advancement purposes) have been discussed on here before – without answers that are ether generally agreed or likely to be convincingnot least to Germanic analysts. They need to be argued through much more thoroughly before Noonan and Lucinda could be expected to even try to sell them.

    Maybe the conference notes or subsequent discussion might do that.

  45. @Joseph Ryan

    From that link it is quite instructive to look at which NCBs had their losses “socialized” across the EZ. If the collateral that defaulted had been deposited with the ICB from Lehman’s subsidiary in the IFSC, for example, would the reaction have been

    (a) That was bad luck, let’s get everybody to share the losses

    or

    (b) That was the result of irresponsible national regulation, so losses must be taken by the ICB alone.

  46. Well our last real card, the €1b Anglo bond, is repaid. Why on earth would we now expect, naked and powerless, to get any concessions? If we do, it will be for pity not because we are an independent state. Gaaa…there’s a nasty taste in my mouth this morning.

  47. I think that the banks and their losses will eventually be digested by the economy, at enormous cost to the populace, and the market seems to take this view too as it speaks through the bond yield . However, what seems to be far more important now is to consider what changes have been put in place and what others are required to ensure that this doesn’t happen again 30 years on. AIB has a tendency to blow up once a generation. What has been done to ensure the 2040s are stable ?

    another point that has been emphasised in the FT capitalism series is that the general public understanding of financial risk in the products sold to the public is abysmal. What change can we expect in this area for the future?

  48. @ Colm McCarthy

    Your point on pensions highlights the contrast between the demands for fairplay from Europeans while turning a blind eye to inequities at home.

    The same people who insisted on low social security costs in the private sector and resultant low pension coverage, provided themselves with a very costly system.

    Newspapers report today on a 56 year old civil servant due a €400k payout plus an annual €107,000 pension. What would the actuarial cost of that be for a person who could live until 80?

    As I said before, it’s a pity that most of the current outrage only appeared after the crash.

    Before the 2007 general election part-time councillors with the help of senators successfully lobbied for special pensions.

    @ seafóid

    2040?

    Even thinking forward 10 years would be a stretch.

    Significant change will only come through external pressure.

    Two developments on competition and cartels in the space of 12 years speaks volumes for how Ireland is run and the power of vested interests.

    Taxi regulations were declared a ‘restraint of trade’ in 2000 by the High Court. It has taken national bankruptcy for time to be called on legal cartels.

    Taxi protests were treated as a police issue but the rumble of a tractorcade had the politicians quaking.

  49. Ireland returning to the markets…!

    IRELAND ANNOUNCES BOND SWITCH

    The National Treasury Management Agency will announce switch terms from 4% Treasury Bond 2014 to a new 18 February 2015 bond. The announcement of terms will take place at 14.00 GMT today, 25 Jan 2012, on Bloomberg page NTMA2 and will contain the following information:

    -Price at which the NTMA will buy 4% Treasury Bond 2014
    -Coupon of new bond maturing 18 February 2015
    -Price at which the NTMA will sell the new bond maturing 18 February 2015
    -The switch will be on a matched nominal-for-nominal basis

    The settlement date is 1 February 2012

    The Offering Circular for the new bond maturing 18 February 2015 will be
    available for download on http://www.ntma.ie at 14.00 GMT today

  50. @ Eoin Bond

    What is the purpose of that exercise? To improve the cashflow profile between 2014 and 2015?

    @ Phillip II

    I’m not sure what you mean by ‘last real card’. The Irish government could just stop repaying the PNs altogether if it wished. That would have a bigger impact than defaulting on this particular Anglo bond. Of course there would be some pretty major consequences to that.

  51. When best in class is worst in class
    So, if Enda Kenny doesn’t want to write DEFAULTER across his forehead, what should he write?

    Maybe TRAITOR, DAFT, CHICKEN, EMPTY (add your own to the list). I’d say it should just be the word, EMPTY.

    Once again the three stooges headed to Frankfurt, Gilmore wearing his green jersey, Kenny with some unnamed DOF official. Were they all there ?

    They were called over to meet with Draghi and Ollie Rehn and european colleagues to discuss promissory notes and the payment of the Anglo bondholders.

    Little did the buffoons realise they were really called over to deal with any anxiety, panic attacks they might have to lead them decide not to pay the Anglo gamblers.

    Draghi had discussed the matter with colleagues and had sought emergency permission to do a deal on promissory notes.

    A rescheduling of the PN’s to 30 and 50yr extensions and subject to ‘ability to pay’ clauses was deemed too innocuous and derisory to offer Noonan. But this hand would not be played unless strictly necessary.

    All these concerns of Ollie and MArio were unfounded of course. Ireland was best in the class. Relieved Laughter percolated from the room as Ollie reassured Noonan negotiations re PN were ongoing and making huge progress.

    To his surprise Mario did not have to use the PN card.

    On the way home from the meeting, Noonan fell asleep and had a strange dream. Ireland had turned into a government jet with twin engines.

    Suddenly there was an imperceptible bang followed by the Jet losing all its fuel; then the two jet engines exploded and jet Ireland was flying through the air gliding along looking for somewhere to land. They were running on empty.

    Noonan was glad to be woken from his dream to find everything was normal. The dream must have come from reading the Indo report on the running aground of the cruise ship, Costa Concordia; that odd piece in the indo http://bit.ly/zvVHQU which left out the captain’s name, Francesco Schettino.

    Economic mismanagement on a grand scale, worthy of a Romanian Ceaucescu socialism for banks; with its attendant austerity model attacking the public purse, is in full swing here.

    If you listen carefully this morning, you can hear the hull of the Irish cruise ship scraping the rocks 🙂

    😕

  52. @ Carson

    we have a big redemption in January 2014. I suggest we will have a smaller redemption after this. You could argue they are issuing 13 month paper from Jan 14 – Feb 15. Throw in a reopened tbill program, and even without a “proper” market return, we will have “funded” a large portion of 2014 req’s.

  53. Tbills to be bought by ECB recap money provided to European banks to hide the debt of european banks and get them to buy the Tbills and hide their debt as well?

    This is the euro feeding on itself.

    How long can it last?

    Bring on the Fiscal Compact joke and we’ll all have a real hilarious laugh. Lol.

  54. The whole return to markets is a paddy’s joke as long as we’re totally funded by the Troika and the EMF.

    As long as the Troika and IMF are here and ELA is here, this is not a market economy. Tbills, all bonds issued by this economic mess, are underwritten by the Troika and ELA and the promise of ongoing bailout.

    You want a market economy, leave the euro!

    Eoin, stop pretending and fooling yourself, get real !

  55. @Philip II I think that is a little fatalistic. Today’s bond payment is not a nice thing for Ireland, and the rubbish about ESB costs going up…

    It’s probably about the Cajas but there’s no way on earth the ECB can publicly say that, nor can the Irish Government. However, if it is about the Cajas then both the ECB, and more so the Irish Government staying schtum has to come with a price tag, I really can’t believe any Irish politician could take a hit for Spanish banks without agreeing a trade off, I can see that such trade off could not be mentioned in public at this time.

    One obvious quid pro quo might be to have agreed that we can retire any debt held by the ECB at the ECB’s carrying value and not at par. Doesn’t cause any obvious legal issues for the ECB once they don’t lose out, could actually impact on the stock of Irish debt in a meaningful way, and if it is announced at a time when the European bond markets have settled down it doesn’t even cause obvious moral hazard arguments with the SMP since the ECB could clearly link it with banking rescue costs to distinguish it from other SMP bonds.

    The Greek PSI deal probably means that even if they wanted to they probably couldn’t agree to tender the 2014s for rollover into mv (shouldn’t be a legal impediment to one investor agreeing to roll over on worse terms than the others, but the ECB does like its moral hazard risks and is coming under IMF pressure on Greece where its hands are a lot cleaner than they are in Ireland).

    Maybe I’m being an optimist but given our banks are now only a little bit more rubbish than a lot of their European peers, given they’re well capitalized (no one mention the size of AIB’s DT assets in tier one please), and our compliance with the programme the ECB cannot be seriously suggesting pulling the plug on our EU membership at this time. They could be offering something, and retirement of their SMP bonds at their book value is something they could be feasibly offering in private. If they’re not it should be something that the Government should be looking for, would have a more meaningful impact than changing the coupon on the dreaded pms.

  56. Ahem….
    Isn’t the job of government to govern for the people. Not just to turn us into some kind of debt servicing machine.
    If the interest repayments on your debt exceed growth or inflation then you are in a debt spiral. I will accept technical correction but the fundamental point remains the same.
    The worst kind of people to have in government are tools who are seduced by the alchemy of the markets. Sc**w the markets!

  57. @CMcC,
    “IBRC (= Anglo + Nationwide), along with all the other banks, lost the capacity to make up whatever final-salary pension deficits were on the liability side (or buried in a footnote to the accounts) when they went bust.

    On re-capitalisation, they have been placed in a position to meet these obligations. So whatever is left in IBRC will be available for this noble purpose, before anything goes to the state.

    Anyone remember what happened to pension scheme members in Waterford Glass? It went bust, and they lost their pensions. The state declined to bail it out. Too costly.”

    Perhaps I have an overly jaundiced view of the people involved, but I had always assumed that squaring the banking unions and their members, and thereby preventing the ICTU from blowing a fuse, was a significant aspect of the political calculation they made when deciding to underwrite bust banks.

    It’s still happening, with jobs and payment levels in the state-owned banks being protected *almost* as if they were part of the public service, and the costs being piled onto the public debt.

  58. @ grumpy 2:09 am

    Thanks, you found it, that’s the exact one:

    “If this collateral still does not cover the amount loaned out, the losses incurred by the central bank are shared with all the other central banks in the Eurosystem”

    And this makes total sense. Without such a condition every country could issue any amount of ELA it wanted and hyperinflation would happen overnight.

    The PN then becomes a guarantee that the amount of ELA specified by the PN will be restored; failing that, other CB’s have to make good the losses.

    This is a core concept of how the euro currency works. ITs an effort to model the FOMC role in liquidity balance in member CB’s under the FED.

    If banks fail under one CB, say in Philadelphia region, leading to a loss of liquidity effecting lending and leading to deflation in that state, the role of the FOMC in restoring order, fixing the banks that can be fixed (and often allowing the worst to fail), is to provide extra liquidity in that region. On the other hand, if a state is in a runaway surplus and doing very well, lending, pricing increasing, inflation beginning, the role of the FOMC, is to take away liquidity and curb that inflation.

    ELA is a rather messy and failed effort to replicate the system above. Its messed up by all sorts of political schenanigans including plain vanilla incompetence, human error and corruption.

    If the euro was working properly, our PN repayments, at the very least for Anglo, would have been written off; if not, just foreclose the euro tomorrow. Doesn’t work, just a
    small financial volcano getting ready to blow.

  59. It seems to me that the success of all the various government bond auctions in the last few weeks is very dodgy.
    Nearly as suspect as the latent threat sent to Germany when one of its auctions failed.
    We all know about the ECB purchases of Government bonds in the periphery but it looks as though the political establishment and the ECB have done a deal with the banks telling them to purchase bonds at reasonable rates or else your banks go bust. It wouldn’t surprise me if the fair rate was agreed before hand.

    Any semblance of a functioning market is a myth IMHO

    The one thing I find odd is that the Irish bond rates have been coming down but Portugal’s have not.
    Also it is only the Irish 5yr bond that is hovering around 6% the 10yr bond, the one usually quoted, is still over 8%
    Eamonn Gilmores comments this morning were very misleading in this regard even allowing for the fact that the rates are only reliable when we are actually trying to sell bonds.
    However It looks as if from what Eoin is saying above that the NTMA have been given the green light from the powers that be.

  60. Re Enda’s Comment in the Dail yesterday about not writing defaulter on ‘our’ foreheads.

    Surely one of the most economically stupid things ever said by a leader.

    The spirit of dead Romanian despots is alive and well in Kildare street.

    Someone needs to ask Enda.
    Do you think that comment, admitting that there are no circumstances you will contemplate default, will help Michael Noonan in his current negotiations?
    Why would the ECB even bother listening to Noonan now the veiled threat of default, due to the moral and economic perverseness of the ECB insisting we continue to pay, now that any form of default has been taken off the table by the leader of Ireland?
    What a plonker!!

  61. @ Eamonn

    “Also it is only the Irish 5yr bond that is hovering around 6% the 10yr bond, the one usually quoted, is still over 8%”

    Ireland 2025’s at 7.20% fyi, its possible some generic quoting on Bloomberg/Reuters give u 8%, but real market better than that.

    And this mornings announcement is a switch, not a new issue, but its
    clever, and potentially extends timeline on when we need additional funding by 13 months. In a world of small margins, that could be important.

  62. @Aisling 10:14

    “I really can’t believe any Irish politician could take a hit for Spanish banks without agreeing a trade off, I can see that such trade off could not be mentioned in public at this time.”

    I really am coming around to the view that people don’t know what a currency union is supposed to be 🙂

    The trade off is the stability of the euro. The trade off is that if a member gets into difficulty, that its banks will be fixed, that its balance of payments are brought in line with The Stability @ Growth Pact 3% 60%; so that cross infection of the euro will not happen. The trade off is that Germany gets to sell its goods to stable supporting economies. The trade off is economic and financial discipline that prevents these abuses of the currency happening. The trade of is the euro gets to work properly.

    RE “One obvious quid pro quo might be to have agreed that we can retire any debt held by the ECB at the ECB’s carrying value and not at par”

    As I would prefer to be confused rather than misinformed, could you elaborate a little more on this as I’m not sure I get the full meaning of your point there? Carrying value as I understand it includes all interest repayments plus the principal payable on maturity ?

    Are you referring to a possibility whereby the government issue a tBill that will be bought by the ECB that we can use to purchase the PN notes at par or wha? 🙂

  63. @ Colm

    “As I would prefer to be confused rather than misinformed, could you elaborate a little more on this as I’m not sure I get the full meaning of your point there?”

    ECB owns c.20bn of Irish debt, bought at say 85 cents on the Euro. If they sold it back to us at 85 cents on the Euro, rather than par (100), we pocket the difference.

  64. @BEB – if you check the timing of ECB buying of Ireland, reported to have taken place mainly in H2 2010, I think the average price (regardless of the maturities bought) could be significantly higher than 85.

  65. This new bond offering reminds me of a saying …switch and bait or is it bait and switch?
    Obviously it is prearranged..bound to see our captive banks row in with the pile of dosh they are sitting on.
    How much are we borrowing this week to fund ourselves…I see we are paying some official in the department of health over 400000 in a retirement payoff…which we will borrow from our buddy’s in the troika.
    Tragedy/Farce?

  66. @ bond re ” bought at say 85 cents ”

    @ aiman re “could be significantly higher than 85”

    Who has the exact >85 figure and savings involved?
    ok, less misinformed but still confused on this particular point, how would this be funded?

    Are we talking about Irish banks borrowing from the ECB in order to buy back Irish debt? How would the NTMA get involved?

    Should not the Irish banks already be borrowing from the ECB at its low rates to buy back this debt?

  67. @ceterisparibus – “Obviously” nothing. The NTMA are offering switch terms out of an existing bond into a new bond. That hoovers up zero of the pile of dosh to which you refer. It isn’t new funding.

  68. @Aiman
    Badly worded..sentiment the same. A dangerous strategy if you don’t know the result.
    In the meantime…Angela giving up on Greece
    “German Chancellor Angela Merkel on Wednesday expressed doubts for the first time that Greece can be saved from a meltdown, given that after two years of financial assistance and brutal austerity measures, the debt-wracked country still appears unable to rally.

    Speaking in a interview with the UK’s Guardian and five other leading European newspapers, Merkel described Greece as «a special case,» saying that «despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilize the situation.”

  69. @Colm Let’s pretend that there is 1,000 outstanding in the 2014 notes which are about to be rolled over. Let’s pretend that the ECB owns 200 of those for which it paid 170 (continuing with Eoin’s numbers of 85c in the euro).

    In theory the Irish government is going to issue 1,000 of new 2015 bonds to the holders of the 2014 bonds. If the ECB were game here, they could separately agree to tender their 200 of old bonds for 170 so only taking 170 of new bonds. So, post bond swap we’d have paid off 1,000 worth of bond with 970 new bonds, we’d have reduced our debt by 30.

    Even if they promise to do it at some point in the future (any point before the bonds actually have to be repaid) you could achieve the same result.

    The number of 85 is just an example, as aiman points out they may have paid more, but we might also be able to argue around yields such that if they get back what they paid for the bond, plus the base rate, that the difference, the profit as it were, could be passed back to us. This could be the discount plus the yield in excess of the base rate which should still avoid any argument that the ECB assumed Ireland’s debts.

  70. So what’s the liability incurred by the CBI when it created the ELA? The answer is that money it magicked out of thin air is considered a liability of the CBI.

    So the whole lot is “in the system” and it did not cause inflation. No?

    It can be written off completely without any damage to the economy. No?

    Why not just magic up €3 Trillion in the same manner and sort out the Euro Banks balance sheets.

    Take those banks that are bankrupt into custody.

    Break them up and re-float them with clean balance sheets.

  71. @ Ceterisparibus

    Greece may well be a country where the wealthy elite resist change in common with the those from political parties who have been given mock ‘jobs’ in the public sector and the large number who had a good living from kickbacks.

    Unfortunately, it’s quite possible that change may only come after a more serious economic crash.

    Its neighbour Turkey shows that there can be life after death but aa usual it’s the people with little that would be the biggest victims.

    Foreign governments or troikas cannot lead any country to salvation but wise local leadership could use their help.

    The resentment in Ireland towards the ECB maybe strong and the nature of these crises is that negatives are seldom offset with positives. The central bank has provided funds of up to €100bn for domestic Irish banks; even if all the banks had been alowed fail, where would funding come for new banks?

    Spread the resentment around as Obama has called for a minimum tax for US multinationals — the threat fom the EU maybe more benign.

  72. @ Aiman

    re ECB buying. Yeah, probably a bit higher, though they traded well North of 100 then given the high coupons, so 85% of “normal” price.

    And yes, it aint new funding. Yet. Once the new bond is up and running, what odds they tap it for primary issuance? LTRO meat, everyone else is playing the game.

  73. @Bond Eoin Bond

    It was reported yesterday that the ECB were buying Irish bonds (amongst others).
    If they are doing so well , why ?

  74. @Ceterisparibus

    Merkel described Greece as “a special case”

    Are you sure she said “special”? 🙂

    I’m not sure I would take much of what Merkel – or any EU leader/official – says about Greece as anything more than brinkmanship until the PSI talks conclude (one way or the other). I still think they will fudge some kind of can-kicking deal. Though purely from an interest pov I would like to see what actually happened if Greece did suddenly default… perish the thought… I would probably wish I hadn’t if they did.

    It would be a great shame if, after a couple of years of pain, Greece were now thrown to the wolves when perhaps a managed default and exit should have been seriously considered back then.

    Whether it be Greece or Ireland, I never understand why political ‘leaders’ always want to adopt the strategy of waiting to see if something will turn up or hoping it will just all suddenly get better on its own rather than taking firm/decisive/nip-it-in-the-bud action.

    I will give ‘growth watch’ a miss today. There are too many meaningless statements about needing to promote/create growth coming out of Davos today for me to choose from, uttered by people who are simply saying they think someone else should be doing something about it and ain’t it all so terribly awful. Unfortunately, you will only hear the sound of ‘one hand wringing’ from them as they will be checking the value of their investment portfolio on their smartphone with the other hand.

    I guess my invite to Davos must have gone astray in the post. It still hasn’t turned up. Perhaps the gig at Croked Park on Friday with Karl Whelan and the P-notes will be some consolation. See you there.

  75. @ CP

    “If they are doing so well, why?”

    Well (a) i didnt hear or see anything from them yesterday but (b) the bond buying is a “reward” for sticking to the program.

  76. @ Eoin 11:28 am

    What are the down sides for the ECB? In selling PIIGS back there bonds at purchase price?
    It means Germany has less leverage to make us all Germans via Austerity etc but for the ECB?

    @ Karl and Irisheconomy.ie admins

    Any chance of an FAQ on irisheconomy.ie?
    It’d give journalists less of an excuse to be sloppy.

  77. @ PR guy

    She probably said “Sonderfall” which can also mean “outlier” and doesn’t have to be so ******* special.

  78. @ John

    “What are the down sides for the ECB? In selling PIIGS back there bonds at purchase price?”

    Reputational really, shows they can buy something at a market price and not get full market “value” ie given credit risk etc. It shows they would be “flexible” in restructures going forward.

  79. @Aisling 12:55

    Thanks for explanation there. Only problem with it is this is all strictly meant to be temporary emergency funding by ECB. Plus you used the term carrying value which comes back to the topic of interest rates on these bonds.

    We’re talking about 2014 here which is a bit off the wall if the ECB will last that long, or carry out market interventions and sovereign bond purchases for that long;
    but lets go with the example you put.

    I was wondering how the interest rate factor related to
    the purchase rollover in 2014. What, if any, are the interest rate variables? I presume the 1.5% ECB interest rate is a factor, but feel free to elaborate on this aspect as well 🙂

  80. Ashling

    but we might also be able to argue around yields such that if they get back what they paid for the bond, plus the base rate, that the difference, the profit as it were, could be passed back to us.

    Could be passed back…?

    If the expected profit is not passed back as a matter of policy then what we have is a public European Institution making windfall profits from the difficulties of its weaker members.

    I think Patrick Honohan should be asked to comment publicly on what ECB policy is on this matter.

    Personally I would suggest it is incredible that the ECB would NOT pass on the profits as a matter of written policy.

  81. @ Joseph Ryan

    +1

    My own view on this has always been that the Irish Economic Mismanagement Committee has been pumped/extracted/looted from the beginning as a nest egg to draw down as much as possible to provide a backstop to the very real losses of Greece; plus lots of derisory contempt there for the way Ireland managed itself and continues to manage itself; no deal too bad for Ireland Inc.

    Ye only salvation to draw from this is that the penal extraction of terms imposed on Ireland is an unworkable solution that will later come come back to haunt negotiators whose best interests are to save the euro.

    Its also worth considering if some Troika negotiators, perhaps those from the ECB, have made a calculated decision that Ireland must eventually default; so best to extract as much pound of flesh for European banks before, as it were, the ship sinks.

    How else can you describe the incompetent mismanagement of Enda’s ‘we’ll pay our way’ when payment terms are extracted and designed by our paymasters based on our promise to comply and our refusal to say ‘no’; when we signal our paymasters to charge us at top rate, on whatever terms they choose to come up with, we’ll still ‘pay our way’.

    Ballymagash …..sure its no matter what the payment terms are…. set whatever terms you like, you supply the finance to pay it back; we’ll pay it back with whatever you give us to pay it back…takes running on empty debt peonage/bondage to a new level…

    After all, its not Enda’s money he’s playing with, the debt can be kicked on to later generations of Irish people; you never know our paymasters might even revisit the terms of the PN’s …what a tragic, farcical, sucker mess Irish Economic Mismanagement IS, lol 🙂

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