Presentation on ELA and Promissory Notes

I’m sure all the presentations will be posted here at some point but I had promised readers that I would put up my slides on ELA and promissory notes from today’s conference, so here they are.

110 replies on “Presentation on ELA and Promissory Notes”

Isn’t banking crisis a fine looking child? And he’s in junior infants already ! He is the spit of his parents.

Thanks for posting the slides Karl, great presentation. I think I nearly understand the concept of Promissory notes so hopefully a review of the slides will get me there!

So when the CB accepts the ELA as payment the money supply will decline further just as consumer credit is being repaid also.
Well that should be interesting I guess.
But if you are making travel arrangements for next year better be prepared for all eventualities.
According to the handbook you have got to take some security measures if you are going to talk about a plan away from control headquarters.

PS – it would be interesting to know what was the ratio of domestic deposits & bonds to external depositors ( hands up , I was a Anglo depositor)

Oh the shame the shame.

The shedding of light in to those dark corners where webs of deceit are spun is wonderful to behold. But it doesn’t take us much further to a resolution. Stll, perhaps, that wasn’t the objective. We need to understand the beast before we can work out the best way to contain it.

And just a general suggestion. I’m sure those you are responsible for posting the conference proceedings here are on the case, but, given the depth and richness of the material presented, would it be possible to have a post for each of the themes covered?

Quick question.
What are the sanctions to stop a National CB from issuing ELA without ECB approval?

@ shaun byrne,

The bit I heard was that a 2/3 majority on the ECB board was needed for a CB to wave its majic wand in the first placein the first place.

I was idly wondering if the government could set up a modest sized Irish Investment Bank using a pro, note and ELA.

The Eurosystem does not do national investment banks as the Euro is the crowning glory of the flowering market state……………….

Rule by Banks is a Bitch………but someone should have told us.

The state simply can not afford to service much of the housing built over the last 20 years either inside or outside the Euro – investment should be all about saving what can be saved and letting the rest go back to Agricultural.


Not much is obvious in the financial Hall of Mirrors. Ratings agencies are private businesses, who gave AAA ratings to some of the most dubious products ever sold.
So the Divil knows what, apart from their own ‘earnings’, motivates them now.

If the ECB needs to give the say so first surely this does not really tie with what Karl says that the national CBs lend the money. The money actually comes from them but really it is the ECB doing the lending, just getting a subsidiary to do the dirty work.
How did we end up in this situation where we all have to pretend that somethings are not happening (ECB QE) and other things are happening (growth through austerity)

@ Karl,

Very interesting idea. Do you think they (DoF and Govt.) haven’t considered this option?

Second question, which you probably answered in your oral presentation, but one assumes for this idea to work, the Government would have to ask the CBI to go along with it? They can’t ‘direct’ them to comply, surely, given the CBI’s indepedence? So why might the CBI – and by extension, the ECB – agree to this proposal?

It would be helpful, I think, if we had more clarity fromt he Government on what the options are. But they have been incredibly vague about their ‘negotiations’. Whilst this is understandable from the point of view of not wanting to show their hand and so on, the downside is that ordinary citizens, like yours truly, are getting more than a little skeptical that they’re seriously engaging with the EU institutions and even cynically beginning to wonder about their capacity to acheive any real progress in this area.

I would have thought a discussion on all the options at the level of the Finance Committee would be a useful initiative and a worthwhile next step. That way, the Minister for Finance could allow a public discussion to take place,l teasing out all the possibilities if only at a theoretical level, without the Government having to disclose any details about its current negotiating position. Hope you get a phonecall from the Committee Secretariat one day soon!

@ Veronica
If you keep making sensible suggestions like that the government will never listen to you!!!!

Louis etc.

The resolution we have made to direct our attention to everything which may procure the welfare of our subjects, has caused us to examine the different edicts by which the kings, our predecessors, successively created, suppressed and restored different offices, of which the greater part remain in existence, in connection with the port, quays, stalls and markets of our good city of Paris, and the concessions of various sorts which were alienated to these offices.

We have discovered, by the conditions of the period in which they were created, that they owe their origin to the extraordinary needs of the state in times of calamity, and we are assured that in times more fortunate it has always been proposed to suppress them as burdensome to the people and useless to the police regulations, which had served as the pretext for their creation.

It was in accordance with these motives that the suppression of all offices of that kind which were created since 1688 was decreed by the edicts of May, 1715, and September, 1719, and all these offices remained abolished and suppressed without making any change in public order and police, after the said years 1715 and 1719, until the years 1727 and 1730, when the late king, our honored lord and grandfather, decided to restore them, and did so by the edicts of January and June of the said years. In article II of the edict of 1730, it was specifically ordained that the former incumbents of the offices which had been suppressed might acquire the offices newly created upon the payment of sums fixed by the roles decreed by the Council: namely, one seventh in money and six-sevenths in liquidation of the former offices, in arrears of the same liquidations, and in supplemental contracts with the city; and with regard to those who had not been incumbents formerly, they were permitted to acquire the offices in like manner upon payment of one-sixth in money and five-sixths in contracts.

The taxes alienated to these offices having been compared, in 1759, with other taxes of the same kind re-established by the edict of December, 1743, and farmed out, it was discovered that there was a great disproportion between the products of these taxes and the finances of the offices. The late king, by his edict of September, 1759, ordained that the offices should be suppressed; that the taxes should be collected to his profit and that the product should be destined to the repayment of so much of the finances of the holders of the offices as was comprised in the sums loaned by them.

That edict announced to the people freedom from many branches of burdensome restrictions, and to the state the recovery of part of its revenue. New requirements prevented its execution: the edict of March, 1760, permitted the holders of the offices suppressed to continue for a time the exercise of their functions and to enjoy their privileges; it ratified their suppression, however, by postponing the collection which would effect their reimbursement, the time of which was fixed at January 1771, and to be completed in 1782.

Circumstances continuing to be contrary to these provisions, it became necessary to provide by the declaration of December 5, 1768, that the beginning of repayment should be deferred until January 1, 1777, and be finished in 1788.

Government could swap all IBRC promissory notes for 10-year bonds. Then every year IBRC would sell a portion of the bonds to the market and would pay to the CBI with the proceeds. Government will need to pay only interest until 2022.


and this from our EU partners on the Greek second bailout even they know Greek debt is unsustainable

“Greece has to legally commit itself to giving absolute priority to future debt service. This commitment has to be legally enshrined by the Greek Parliament. State revenues are to be used first and foremost
for debt service”

looks like their trying to show Greece the door

“Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service”

The presentation mentions Target 2.

This is risky. You’d never know if a certain individual with initials HWS might read it.

@ George

You’d have big MTM risk, that’d be your problem, and you’d also be issuing a new 28bn 10yr bond which would see a massive steepening of the Irish curve, not sure if demand could be high enough to continually absorb such a transparent amount. Great in theory, messy in practise.

@Shaun Byrne,

The problem with the Govt. is not just that they don’t listen, they don’t want to hear any alternative approach that might discombobulate their favoured strategy. Except that none of us have a cat’s clue as to what their strategy is or the range of options that have been considered by the government and its advisors. The media, and the parliamentary opposition, appear more interested in so-called wounds to national pride caused by the Taoiseach’s comments in Davos than any real issues of substance. Still, I live in hope that when the Finance Committee get back from their visit to Berlin, one or more of them might wake up to the fact that a public debate is warranted.

@ clintideal

I agree! Or rather they are telling the Greeks that they can live with a disorderly Greek default and/or a departure from the euro. What they will accept, it seems, is an undertaking signed by all the Greek political parties with regard to implementation of the second bailout. That is on the assumption that there is a deal on PSI. The gap, apparently, at this stage, is €12 billion. Advanced by the ESF to redeem bonds purchased by the ECB?

@ George and BEB

Your exchanges illustrate the nub of the problem and cut through all the twaddle. The promissory notes are expensive because the status of the creditworthiness of the guarantor – the Irish state – is extremely doubtful (as evidenced by the suggestion by Buiter that a second bailout may be necessary).


I can see where you’re going with this, but, for the life of me, I can’t see what benefits this ‘public debate’ initiated by the Finance, Public Expenditure and Reform Cttee would generate. The Government would simply refuse to engage in any meaningful way and would be able to wheel out a barrow full of reasons why any engagement in debate would prejudice its position, and Ireland’s interests, in its negotiations with the various institutions in the EU and elsewhere on this matter.

I remain convinced that the EU institutions and senior politicians are well aware of the hook on which the Government is impaled – and, more importantly, of the damage, both political and economic, this impaling is causing. It is also in their interests to help to get the Government, and Ireland, off this hook. But the intensity of the Government’s desire to get off this hook is not matched by a similar intensity on the part of those with whom it is negotiating.

The intensity of their desire will increase when it becomes clear that not making a serious effort to assist in resolving this problem could compel a majority of Irish voters to reject the Euro should a popular vote be required to ratify this ‘fiscal compact’. Even if a popular vote is not required, or the Government succeeds in avoiding holding one, popular resentment about the fiscal impact of this imposition could derail the Government’s apparent success in satisfying the conditions set by the Troika. One has to doubt the ability of the Government to deliver another round of fiscal tightening later this year while this imposition remains in place. There can be little doubt that it is contributing to the extent to which the Government is watering down, and apparently being allowed by the Troika to water down, structural reforms in the sheltered sectors.

This is most unfortunate, because, in the context of this balance sheet recession, reforms in these areas are the principal means of yielding the increases in productivity and efficiency that will boost economic activity and generate jobs. It would be far better to have the Government engage in a ‘public debate’ about these issues than to have the usual slanging match about these darned PNs.

On a more general note, it seems that the (very limited) media coverage of Friday’s conference focused mainly on Karl’s contribution in the Banking and Euro session. I would love to know how many people were at the parallel Economic Recovery (Competition, Regulation and Privatisation) session.

@Veronica and Paul Hunt
the reason they will never reveal any kind of information is that they believe that knowledge is power and so to make themselves look intelligent they give the old nod and wink and say sure “I know something you don’t know”. You just need to see their abject horror at the FOI legislation and their doinh anything they can to water it down.
They know that they would have to reveal they do not have a clue what is going on and then sure why would anybody vote for them then.

Excellent pdf Mr Whelan. I don’t think the general public are aware enough about these matters – contributions like the above help.
Are our Politicians aware, one wonders? or is reiterating phrases like “teacher and nurses won’t get paid”, the depth of it?

Very informative prsentation by Prof Whelan. But as usual the odd tendentious observation so capable of being totally misrepresented by the likes of Gene Kerrigan (big fan of Karl) in the Sindo.

Take the comment that the repayment of ELA was used to pay down liabilities rather than buy gold. So what? I paid off my mortgage rather than buy gold. I think I would prefer our central bank not to be taken leveraged positions in gold at these prices.

CBI balance sheet. Aren’t the reserve accounts the base money contributed by the CBI? Actually fallen since Feb 2011. CBI has been printing base money okay but ECB base money through the Target 2 system which I presume are in there under Other Liabilities. Ask Prof Sinn!

A statement that “the second answer is more correct” is grossly misleading as it suggests to those who wish to believe these things that there are silver bullet solutions to this mess.

As to the Concrete Proposal I do not know were the big wins are here? Is it interest rate payments because of rescheduling? The only real wins that Karl’s fan club want to see are burning bondholders and generally defaulting. So far as I understand the presentation, this is not what is being suggested, moreover it appears that there is not much to be garnered by that route anyway. I’m afraid that if Pearse Doherty, Gene Kerrigan etc. wish to walk away from our debts it will be from our debts to the ECB that will be involved, not nasty foreign bondholders.

Of course we can write off the ELA from IBRC. That’s a loan from one arm of the State to another. We finish with negative reserves in the CBI. Of course the sky doesn’t fall in because of that. But this only contributes any value to Irish taxpayers if we can walk away from those negative reserves. In other words if we can default on our liabilities to either/or/and bondholders and the ECB.

What point is Karl making with this second answer? I can’t see it.


The money was printed when the central bank accepted the pro note as collateral and advanced a loan to Anglo etc.

The central bank got permission to do this from the ECB because of the detailed obligations of the note, and valued it as collateral with reference to those same terms. People want those terms altered. They want to alter the repayment schedule, perhaps even making it equivalent to “if ever”.

This makes the temporary printing the ECB sanctioned much less temporary. Karl makes the point that it doesn’t matter if the central bank doesn’t get the ELA paid back and the assets it holds as security are ‘restructured’ to make them less valuable, because it is a central bank and insolvency is almost meaningless.

His suggestion seems to be that the dominant downside to this is that if every country did this there would maybe be inflation. It seems to me that that would also amount to a precedent for unlimited printing to bail out all senior bank creditors. The mechanism for limiting this tactic to Ireland only needs to be discussed.

Imagine yourself explaining that down the bierkeller.

@ grumpy and karl

Insolvency of our Central bank is far from meaningless. It means this state cannot pay our debts to the ECB. Karl clearly has far better grasp of the facts than anybody else, but why does he hint at clever solutions to our problems? The fact is we owe an awful lotta dosh to the ECB and there is no escape from that.

@ Grumpy/BW2/Karl

In (relative) theory a central banl doesnt have to worry about being insolvent, but in current real-world Eurozone politics a write off of ELA ain’t gonna happen. It’d be de facto (as opposed to stealthy) QE, and we know how the Germans (myopically) view that. The travel agent suggestion is much better and realistic.

What I don’t understand is who will do the asking…? And of who ?

Mickey “Lifestyles” Noonan? Paddy “It’s Manageable” Honohan?

They are mere mid-level, eurocratirc form stampers now.

Their biggest concern will be the new Fiscal Compact Treaty.

This will be the new thing that mustn’t be damaged by such talk.

Pull on the Green Jersey and stop being so mad!

Last slide….Restructure promissory notes to begin slowly repaying remaining ELA debts when the country recovers from crisis according to some quantitative criteria…..

It was probably in Karl’s speech….

What timeframe would you propose, referring to “slow”?

What quantitative criteria? If Ireland left the desert of “technical recession” behind, it may not be out of the woods by any stretch of the imagination.

So Karl Whelan shows that, in effect, if the ECB/chi allow it, this can be treated as akin to “unsterilised” cental bank intervention. The promissory note is. Pittance in the contest of a ten trillion euro area M3. As noted, the concern is that the others will want this too. Well, so be it.
What I want to know and I suspect others also is this: in whose court is the ball? Does noonan have to ask? Or does he ask honohan to ask? Have they asked? If so when and what was the answer?

Grumpy watch my lips. The CBI can write off Anglo’s ELA with no effect whatsoever. It could add a couple of zeros to it with no effect whatsoever. This is a loan between two arms of the taxpayer. For real “wins” we need to default on the external liabilities. The whole matter of Anglo’s ELA is one very pink herring.

Why does Karl refer to “prrinting” and “burning” money? Colourful stuff which the fan club loves as they take the metaphor literally. Printing and burning money is fundamental to our fractional reserve banking. When Joe Soap gets a 200K mortgage his bank creates an entry of 200K in Joe’s current account – it prints the money. When Joe pays back his mortgage the process is reversed – the money is burnt.

Having built a rather gullible fan club, Karl should be a bit more responsible with his explanations. Would you blame Gene Kerrigan for thinking that our central bank burnt billions of money last year rather than buying gold, as these two expressions appear almost side by side in Karl’s presentation.

“Grumpy watch my lips. The CBI can write off Anglo’s ELA with no effect whatsoever. It could add a couple of zeros to it with no effect whatsoever. ”
except for the whole, yknow, borrowing of money to sterilize it, yeah, no effect whatsoever. No effect whatsovever. None….

@Brian Woods II

The 200K mortgage is secured against an asset. The pricing is done by the lender – putting a value on the ability of the borrower to meet capital and interest repayments over the length of the loan.

If the borrower fails to maintain their side of the bargain the 200K transforms into possession of the property by the lender.

If the borrower repays in full the 200K gets repaid and recycled to the next purchaser – who buys said asset from the original borrower – thus transforming his/her asset back into cash

It is, in effect, the borrower bringing forward future earnings via a bank loan to purchase an asset and then reversing the transaction at a later stage.

The system works as long as everyone keeps dancing to the music.

It’s not comparable with the situation with the ELA and Promissory Notes.

From what I can tell, the only connection between the two is Karl is saying the music has stopped but Ireland is dancing it’s head off.

@ Philip II

Maybe my point is too naive and you are trying to read some subtlety into it. All I am saying is that a loan between two arms of the State is irrelevant. The only way we will come out with any improvement on the Anglo mess is if we default on its external liabilities which are mostly to the ECB or if we sweat more out of its external assets. ELA/PN are internal and are really quite irrelevant other than as an accounting and timing mechanism to facilitate the wind down of the corpse.

@ What goes Up

I understand your points and might debate them some day. What I was really trying to get across is that the colourful language Karl is using is potentially misleading. He is more or less saying that our central bank burnt billions when it could have bought gold with it. That is of course true. The CBI could have taken a leveraged position in gold by not paying down its liabilities. So while the thrust of the statement is true the tendentious language conjures up a totally misleading meaning.

Note how journos and others immediately identify “printing” and “burning” money as both essentially evil pursuits even though one is the reverse of the other.

If the Governor/Government refuses to write off the €30bn + interest then at a minimum they should extend the repayment period to 100 years @ an interest rate of 0.00001%.

Repayments to begin in 25 years.

The creation of €30bn of “money”, in these circumstances, will not create inflation.

The inflation, asset price inflation, has already occurred.

The “money” created could remain in the system in perpetuity and still not cause inflation.

Just got my Sunday Times. It seems like the government are indeed pushing for something that looks a lot to me like Karl’s Concrete Proposal.

It seems to me that if we assume that Anglo will eventually pay all its external liabilities that what is being sought in essence is extended very cheap borrowing from the ECB. I am sure the ECB will see through that.

@Brian Woods 11

“When Joe Soap gets a 200K mortgage his bank creates an entry of 200K in Joe’s current account – it prints the money. When Joe pays back his mortgage the process is reversed – the money is burnt.”

Thats credit loans you are talking about – the Prom stuff is now part of our collective MONEY supply.
As that stuff gets paid off less cash will be available to pay private debt & engage in Commerce.
We would be essentially doing the very opposite of the BoE – they are trying to keep the money supply positive as private debt is paid off hoping people will switch to more effiecent practises such as the massive transport pattern shift occurring in England now.
In Ireland people have simply stopped moving and ceased being economical active as a result of our non-optimum currency.
Paying off this Prom debt by burning it would send the money supply further into the pit.
Economies can’t work in reverse gear – they need suffiecent medium of exchange to grease the engines.

@ Brian Woods II

You are, of course, completely correct in your analysis but a gullible public will always react to a “money for nothing” thesis. We cannot bail out Anglo-Irish Bank with monopoly money of our own manufacture. The manner in which the ELA has been structured is open to examination and improvement but it cannot be magicked out of existence. Incidentally, the discussion on Marian Finucane just now was nothing short of farcical.

In the discussion on this blog, sight is being lost of the fact that there exists something called the European System of Central Banks (ESCB). Article 127 of the TFEU dealing with monetary policy states that “the primary objective of the ESCB shall be to maintain price stability”.

As Grumpy points out above, the mechanism by which the idea might be confimed to Ireland needs to be discussed.

That there would be an openess to a CB putting in question the fundamental plank that underpins the euro seems rather far-fetched, to say the least.


“the primary objective of the ESCB shall be to maintain price stability”.

And how would converting the Proms into perpetual money @ 0% interest cause inflation?

Karl – if you can pull this off in term of tipping the ECB balance to allow this payment schedule delay you will be doing the Irish state a considerable service – a’dh mo’r.


I really felt for you trying to explain the promissory note situation on Marian Finucane earlier.

Interuptions after every single sentence.

Christ, ironic they can’t understand the most basic explanation but are happy to pontificate on the issue every other Sunday.

Firstly, great Karl Whelan work done on this. For people interested in this topic, the other blogs on on the same subject, each having excellent information, should be gathered together into one point; for research and ref purposes and simple bread crumbs to help people follow this important topic.

I listened to Brian Lucey and Leo Varadkar on ‘Marion’ this am speaking to this. Also, I was pleased to see a report by Simon Duke And Isabel Oakesshott, mention on front page of Sunday Times

“The cabinet also believes the state can save up to ¢12 bn in interest payments on the debt by moving the loans to the European Financial Facility Fund (EFSF).

According to the STimes, the government is also discussing postponing the debt with the ECB.

The above is the first media report to discuss leveraging the EFSF to help with our financial debacle. The above does not go far enough as far as a negotiating position goes. This raises the question of the competence of our negotiators.

What we should be doing is negotiating the position that the entire Anglo €30 bn approx should be taken over by the EFSF. I’ve argued this before and I continue to lobby for this here. EFSF can manage its own affairs and make it so that it can create an insurance fund, an SPV, an OTC or other derivative contract to minimise and extend out the maturity/repayments on the ¢30 bn so that it costs the EFSF virtually nothing….but thats their business; let them purchase Anglo for ¢30 bn if they like.

The main point I want to make to Brian Lucey who spoke on ‘Marion’ this am, is in reference to the following point he made: that a difficulty with moving the ¢30 bn to the point of extinguishing the debt in total, is the moral hazard this would pose for the ECB: other EMU countries eg Greece could print money at will, this would lead to hyperinflation, destroy the currency.

So, the Irish government, Karl Whelan, Brian Lucey take the view, best can be done, extend the maturity dates, defer payments, work on the interest aspect, leave the principal in place.

I say, No! So how can I persuade the ECB against the moral hazard argument above; what am I asking for?

I’m asking for the debt of ¢30 bn to be squashed and set to null and void? How can you ask for that?

There are 2 reasons for asking for this to be done. The first reason is to do with saving the Irish economy. This is a debt that cannot be repaid if the Irish economy is to be saved.

The second reason is the more compelling one for me. This is the one that needs to be put to the ECB and the EFSF. The ¢30 bn unlike in the case of Greece where sovereign debt is not banking debt in the main, the ¢30 bn
referred to above is Anglo debt.

Anglo debt requires being treated as a special case. It is odious debt. The Irish government were misled and defrauded by Anglo. The Irish Minister for Finance, Brian Lenihan, was forced in the Dail to incrementally increase losses incurred by Anglo from an initial liability of approx¢3bn to a later liability that leapt to approx ¢30 bn.

Clearly Lenihan and the Irish government were gravely misled. Clearly Anglo banking debt which is odious is distinct from debt incurred to a balance of payments debt or any other incurred liability.

The ECB, the ICB, the Regulator, the lack of regulations and oversight of the distribution of cheap lending into the Irish economy, were all implicated in odious debt Irish citizens are made victim of instead of the above institutions.

Unless the ECB can find a way to bailout the Irish economy by forgiving the odious debt incurred by Anglo removing its burden form Irish citizens, the ECB and the euro will continue to be an unconscionable bag of stones for the Irish economy.

Let me remind you of the wikipedia def of unconscionable:

“Unconscionability (also known as unconscientious dealings) is a term used in contract law to describe a defense against the enforcement of a contract based on the presence of terms that are excessively unfair to one party. Typically, such a contract is held to be unenforceable because the consideration offered is lacking or is so obviously inadequate that to enforce the contract would be unfair to the party seeking to escape the contract.”

That Anglo ¢30 bn is unconscionable, odious debt put on the shoulders of Irish taxpayers: it needs to be removed in total by the EFSF or ECB, messing with interest rates, extended maturity dates, deferred interes rates amounts to fiddling while Rome burns.


I was thinking that an ECB nod for a scheme like this would surely be welcome news for Ignazio Visco, Mario Draghi’s successor at the Bank of Italy and others desperately seeking such solutions.

As regards the discussion on the Marian Finucane program, there is no shortage of proposals on remedies for the crisis, some useful and some wacky. What is striking is the low quality of the broadcast media as nobody need fear being made to look a fool by an interviewer who can forensically take an argument apart by exploring the downsides and practicality.

In fact from default to leaving the euro, in Ireland it’s not necessary to consider the downsides.

Of course having to make a decision is different to suggesting what the decision should be.


My undestanding is that moving the debt to the EFSF would only cost Ireland money.

I mean right now the interest we pay will come back to us (eventually). If we move the debt to the EFSF then the interest stays with them (or more precisely goes to pay EFSF bondholders).

KW was a little unclear (IMO) what he actually wanted the Gov to do, I mean he said not pay the 3.1bn in March but does that mean to never again make a payment, or only pay off interest and let the princpal lose value over time due to growth/inflation or what.

It seems to me that the 31bn will have to be paid back and I was very surprised to hear Varadkar say the Gov was looking for a “writedown” on the principal.

Leo also said there were mistakes in KW’s slides but of course did not elaborate.

Putting this in the long term, but requiring accelerated action if they was any return to bubble conditions in Ireland would be a reasonable way to present this.

Listened to Marian. After the professor outlined that yep, the euro is fiat (and therefore can be created at will) there seemed to be a change in attitude. Leo was his usual mixture of pomposity and passremarkability. What mistakes Leo in KW slides? Its the old tired government attempt to smear the argument by smearing the man
Brian Woods II : You seem to have missed, totally, the point KW has made, several times. This is not debt in the normal way its a repayment to the ECSB. So…
Michael Hennigan : not following your argument there. Nobody is suggesting leave the euro on this issue nor does it follow, surely?

@Rob S


” It seems to me that the 31bn will have to be paid back ”

That’s unrealistic. You simply say No.

On another blog on this topic I gave the document re how losses on ELA have to absorbed by other CB’s if there are losses.

I’m not locked onto the EFSF having to be involved at all. The technicalities can be worked out on other ways to do this through the ECB or the Troika; eg other CB’s can set these repayments down as liability.

Paying off the whole lot in bulk removes the interest payment question to the sideline.

Very bad week last week, odious Anglo bondholder debt paid off ¢1 bn + . Enda Kenny onslaught against the greed of the Irish people. It makes everything above so much more difficult.

After all, who wants to put their hands in their pockets now to bail out the ‘greedy Irish’ now?

We need to demand the Department of Finance and NTMA up its game. Hire 3:6 ; 6:12 ; 12 : 18 or more MA to PHD graduates tomorrow from any discipline might help.


“Paying off the whole lot in bulk removes the interest payment question to the sideline.”

How so? We sould simply be paying 3.7% (the EFSF average I believe) on 28bn to them. The EFSF are certainly not going to lend the money for free!

@ Rob S

Re “I mean right now the interest we pay will come back to us (eventually).”

Re “I mean right now the interest we pay will come back to us (eventually). If we move the debt to the EFSF then the interest stays with them (or more precisely goes to pay EFSF bondholders).”

You are confusing the matter of the principal with the matter of interest.

I’m talking about the principal, moving the principal off the taxpayer as a liability.

The interest aspect is technically interesting but is a minor issue compared to the odious debt represented by the principal. In fact it completely disappears as an issue if the full amount is paid down immediately.

We do have to come up with the ¢3 + repayments annually so raising that money brings into it the question on interest from the ‘bailout’ or elsewhere that we use to finance the repayments; we could negotiate a separate bond issue with the ECB to pay down these repayments including the principal at the end and use other creative metods to focus on the interest aspect.

But largely focusing on the interest alone is a red herring used to conceal capitulation to the onus on you to have to repay the principal.

You should not capitulate on the fundamental principle of refusal to repay the principal; or any of the interest on Anglo (IBRC) odious debt


Re ” The EFSF are certainly not going to lend the money for free! ”

The Irish are great at this post colonial stockholm syndrome mentality. I believe it also comes from the inadequacy of our negotiators either through lack of negotiating experience, lack of knowledge, or lack of competence revealed in other ways.

“In psychology, Stockholm Syndrome is an apparently paradoxical psychological phenomenon in which hostages express empathy and have positive feelings towards their captors, sometimes to the point of defending them. These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors for an act of kindness.[1][2] The FBI’s Hostage Barricade Database System shows that roughly 27% of victims show evidence of Stockholm Syndrome.”

We have more arguments telling us what we cannot do re serving our interests, than arguments setting out exactly what our negotiating position is.

Don’t you consider it rather bizarre that every man, woman and child on the island does not know what our negotiating position actually is on debt sharing. Instead, we have debates such as ours at this late point unravelling the mystery of what is essentially, unlike what some people would like to suggest, are simple, easy to understand facts that should be shared and understood by all members of the Dail ?

I suspect this is more in the interest of a small incompetent cabal in the NTMA and Department of Finance whose incompetence hitherto stands more to lose by transparency and accountability; whose great errors and financial mismanagement they want to conceal in a fog of misinformation.

Let the information emerge 🙂 Fire those responsible for the financial mismanagement of the negotiations so far. Upgrade the professional expertise of those involved. But I wouldn’t hold my breath waiting for this to happen 🙂

And yes, that’s what the EFSF should be doing, taking on odious debt, separating out debt that will be repaid from debt that cannot be repaid. If the EFSF cannot act in the manner of a FED FOMC, then so be it, scrap the euro.

The FED would be destroying the 30 ¢bn ELA, setting it as a liability elsewhere among the other US CB’s where too much liquidity exists; in return for fixing the economy worked by our CB.

“On 9 May 2010, the 27 member states of the European Union agreed to incorporate the European Financial Stability Facility. The EFSF’s mandate is to safeguard financial stability in Europe by providing financial assistance to Eurozone Member States.”

Errrr, mmmm, still waiting for ‘financial assistance’, as opposed to more loans, sinkhole bailouts to fatten the euro banks with that Ollie Rehn can fool our negotiators are ‘bailouts’ 🙁

IBRC’s mandate is to conduct an orderly liquidation of distressed assets. Losses are accumulating each month as IBRC sells off the pick of the crop. In a couple of years they will (the taxpayers) be stuck with the unsaleable dregs. We have to get it through our fertile minds that the Irish people have been subjected to experiences in loss of value that will go down in Irish history with O’Neills defeat at Kinsale and the arrival in Leinster at the invitation of the Irish aristocracy the murderous Normans as outlined in the Dictatus Papae 1075-1087. Property values in Germany are still affected by the hyper inflation and collapse in the twenties, Japan by the collapse of property around 1990. The age old Irish fixation with land was as a source of milk, cabbage and spuds which in the last quarter century turned into the mantra “Irish property values have never declined” which turned into the boom that went bust. I should add that the Irish Gov’t poured fuel on the fire since they too believed that property values in Ireland were as safe as a house on fire.

The same misguided thinking is still alive and well. The CBI accepting Promissory Notes payable annually from IBRC is the equivalent of giving cash to beggars in return for a hand written note stating they will pay you back on March 31st for many years into the future.

The problem has to be dealt with not papered over in creative ways. IBRC should be put in Receivership/Examinership and eliminated within a year. That is, sell off the “assets” and settle the books. No more payments to Anglo creditors by the Irish taxpayers. Anyone who thinks that Irish property values will revive in the coming months does not realise how traumatised the general public are. Taxpayers are not amused at the prospect of propping up the landed aristocracy for the next quarter century.

The ECB are not likely to look kindly on CBI creating legal tender (Promissory Notes) because of the precedent setting nature of the activity. Irish peccadilloes might be overlooked if there were assurances that Italy and Spain would not adopt similar practices. We will simply have to grimace and swallow the medicine and the sooner the better.

@Colm Brazel

Your ability to make points is greatly hindered by your continual resorting to childish anecdotes and unrelated paragraphs.

“The ECB are not likely to look kindly on CBI creating legal tender (Promissory Notes) because of the precedent setting nature of the activity. Irish peccadilloes might be overlooked if there were assurances that Italy and Spain would not adopt similar practices. We will simply have to grimace and swallow the medicine and the sooner the better.”
Or get a blocking minority of small states to work with us. It’s a Pitt Dr Honohan seems to have laryngitis these days. His views would be welcome. On many things. When did he last speak? October?

@ Rob S,

“Your ability to make points is greatly hindered by your continual resorting to childish anecdotes and unrelated paragraphs.”

Look, not my fault you can’t differentiate between issues of principal and interest. I’ve tried to explain the difference to you. I’ll not make troll comments.

Our childish response to our crisis I’ve elevated to Stockholm Syndrome to try to explain it. Full conference the other day and few debt sharing positions outlined. I maintain this as a childish solution, its childish to negotiate interest rates on ‘unconscionable’ debt that cannot be repaid. Apparently economists outside Ireland get it; we can’t.

Here’s blog entry stating haircut of ¢50 bn required not the ‘childish’ ¢30 bn I’ve advocated

minimum haircut ¢50

211. David O’Donnell Says: January 23rd, 2012 at 6:53 pm

Wakey, wakey from your ‘interest rate’ dreams 🙂

@ colm brazel
I’m not sure if it was as sophisticated as Stockholm syndrome. As far as I can see it was a plain old inferiority complex. We will always do as we are told when we think our betters are watching.

@Philip 2

“Or get a blocking minority of small states to work with us.”

Larger states have political difficulties sometimes trying to sell QMV to their electorates. I have not come across a presentation of the pro note question that has been aimed at anything other than an Irish audience, let alone one that even might be saleable to Germans.

Plan A then – persuasion and winning an international discussion/argument seems to be being left to who – Leo, Lucinda – to wing it?!! Forget that.

If plan B is to use a 1/3rd blocking minority – ‘qualified minority dictation’ perhaps? to undermine EuroBUBA … then I think readers should be able to work out the likely reaction of the core EZ, plus investors will start to ask themselves which Euros they should really regard as proper ones they want to be exposed to, not least because of the increased potential for the core to exit.

This discussion needs to shift from one which is ideal for being lapped up by Irish politicians and media outlets into one where outside perspectives are considered as more than curiosities. The current argument looks far weaker than the one (that was not pursued) to not pay anglo bondholders.

@ shaun byrne

Inferiority complex is fed by incompetence, lack of education, professionalism and experience and plain cowardice. We need a Wallace Braveheart, perhaps a Michael O Leary, to step in 🙂 ; I do agree the way Gilmore refers to the Troika in abject sychophantic terms, may tend to inferiority complex though, the green jersey he means is leg irons for the Irish taxpayers of the future 🙁

Anyways, for those researchers interested in breadcrumb blog trails, who may be confused by Karl’s position on Promissory Notes relationship with ELA, “losses incurred by the central bank are shared with all the other central banks in the Eurosystem”. Given there appears to be some confusion above re interest rate repayments as a target for reductions to Irish debt as opposed to default negotiations on the principal, I include some previous discussion here on the subject:

“Banks that cannot obtain market funding from depositors or bond investors often borrow from central banks as an alternative. 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.”
grumpy Says:
January 25th, 2012 at 2:09 am

Karl only goes as far as, in his slides: “What Karl’s concrete proposal does also offers leg irons:

From his slides:

“Restructure promissory notes to begin slowly
repaying remaining ELA debts when the country
recovers from crisis according to some quantitative

Nope, this is a proposal for perpetual debt. The markets wont take kindly to a sword of Democles proposal like this.
Plus its a recommendation to burden some generation unborn with the legacy of debt of Anglo et al. FDI looking at our credit worthiness will also take into account our indentured ‘sovereignty’ and risk re foreign liabilities.

We need to confront the issue of burden sharing head on. That means haircuts, same as Greece.

How come we are not demanding a haircut on foot of Anglo odious debt mismanaged by our present government and our last one, defies belief?

Why there were not a succession of presenters arguing in favour of this defies belief also?

@Colm Brazel

Without resorting to hyperbole, if the EFSF pays the 28bn in principle for us – i.e. if they give Ireland another loan of 28bn to pay back the CBI then they will charge us 3.7% interest on this loan.

I don’t see anything wrong with that ‘analysis’ – it is fairly basic.

This interest we do not keep and it leaves the State’s coffers – at least with the circular transaction ongoing at the moment we do get to keep the interest in theory.

@Colm Brazel

Most of the principle in a loan from the EFSF for the purposes outlined above would most likely have to be paid back in a similar timescale to the one currently outlined by the Government in relation to the promissory notes.

If the maturity of our current EU loans is anything to go by in any case.

Yeah, the bond boat having sailed we are in a much weaker position now, to cajole or threaten. Plan A is as unpalatable as Plan B. So, which to choose? Given the atavistic fear of inflation that infects teh Buba (yes, yes, i know ,strong words but heartfelt , and yes, yes I know the historical and present day arguments but still), what to do ? We can neither lead nor drive nor follow.
Its v hard to see ANY rational argument no matter how cogent persuading our german colleagues ; they seem to consider that we can simultaneously deflate our way to growth, exporting as we do, while importing lovely Beemers and mittelstad products along the way. A lack of economic reality is not just the purview of the PIIGS.


“the EFSF. It has no funds of its own. It borrows on the markets, with a guarantee from the (diminishing number) of triple A countries, and lends on that money at the rate that the market dictates.”

Ding ding.

And that rate is likely higher than the 3.7% we have been charged on our EU/IMF loans thus far.

@Rob S

Most of the principle in a loan from the EFSF for the purposes outlined above would most likely have to be paid back in a similar timescale to the one currently outlined by the Government in relation to the promissory notes.

Don’t know why you don’t get this. Stuff the loan:-) All our bailouts are contingent on ‘loans’.

I’m talking about real burden sharing, as in haircuts, wiping off the principal, not amortising the whole debt in some impossible to pay back scenario.

I’m talking about the EFSF paying off the entire ¢30 bn.

How they fund that is their business.

I’m not asking for another loan to pay off the ¢30 bn and paying that back to the EFSF.

We need to talk about haircuts and deciding about what can be paid back and what can’t and should not be paid back. I’m talking about incompetent negotiators who havn’t achieved success along these lines; but who anchor the country to absurd conditions based on impossible to fulfill repayment obligations that are self defeating.

Fire em all and put in replacements of the calibre of Michael O Leary, who knows what a budget is; or better negotiators eg Grimsson’s of Iceland, or Bo Lundgren’s of Sweden.


re “It might also be worth Colm Brazel’s time to consult the website of the EFSF. It has no funds of its own. It borrows on the markets, with a guarantee from the (diminishing number) of triple A countries, and lends on that money at the rate that the market dictates.”

I’m aware of what the EFSF does and what its intent is. It has many ways it can use to raise money, many have been spoken of re leveraging loans using its disappearing AAA to create an insurance fund, etc.

IT can easily be used to create a special SPV raising collateral to pay off the ¢30bn; the point is it can take that debt as a liability on itself.

It will take proper negotiations to achieve that, but this can be done.

But again, as stated above, I’m not locked into EFSF. There is also the ability of ECB to agree other CB’s absorb losses on Irish ELA among the other CB’s; after all, this is what would happen in a real currency under the FED.

@Colm Brazel

Sorry I see where we differ now.

You want the 30bn (28bn) to be paid by the EFSF and you don’t care who pays the interest on that as long as it isn’t us.

Obviously that is preferable but I am trying to look at what might be achievable. Even in your “lets not pay back any of it” scenario it still seems more likely to me that we would be allowed create 30bn at our CB and not pay it back rather than have the EFSF try and raise an additional 28bn.

@ Rob S

Re “than have the EFSF try and raise an additional 28bn.”

OK, good that’s moving to the central issue, which is not paying back that debt.

Now the reason why I drag the EFSF into it is the statement above re “the losses incurred by the central bank are shared with all the other central banks in the Eurosystem.”

You’ll have to read back to see the links related to this eg my 4:48 comment above that. It would be great if the ECB said yes, we agree to writing off the PN’s. The other CB’s can absorb that in some once off structure. But I don’t think is achievable as has been pointed out, what if all CB’s
decided to do the same thing eg, with Greek debt.

So that comes to the EFSF. The EFSF can be leveraged under the conditions imposed by Anglo debt, on consideration that this debt is odious, that the Irish government were conned by Anglo as to the extent of their liability; in consideration of the unfair burden sharing imposed on Irish taxpayers by this; in consideration of the impossibility of the Irish economy to withstand the legacy of this debt plus the obligations re returning to 3% 60% structural deficit obligations; that this debt represents unfair burden sharing on a member state of debt the ECB has some not insignificant responsibility for also; that this debt should be written off.

Of course if the arguments above prevail and you achieve what you describe, “it still seems more likely to me that we would be allowed create 30bn at our CB and not pay it back” , that’s very fine by me.

Bottomline is ¢30bn – ¢50bn needs to be written off before this economy even has a chance of recovery.

However, my overall take on this, is that the euro is doomed. However, you never know, there may be certain Leonidas’s from Thermopylae around who can still save it in some way even I havn’t imagined 🙂 If they do, debt writedown for Ireland is a must in any finAl battles that take place.

Why would the ECB accede to this request if it opened the floodgates to special pleading from all 17 EZ members. So Spanish cajas have special issues and would like to get deferred loans, ditto with Croatian credit unions. If the ECB says “yes” to a deferral for Ireland, which is effectively a writedown when you consider the principal will be reduced by inflation between now and our “return to recovery”.

Unless there is unilateral action, the threat of unilateral action or talks which make clear that unilateral action is a possibility and not just a theoretical possibility, this initiative will go the way of the bondholder “negotiations” and will quietly die in a month or two.

Why should the powers that be in the EZ agree to any reduction in the PV of the PN. This is a society that pays it public servants more than it peers, demands less work from them, pays above average dole, taxes the average worker less. Moreover, when the previous govt does a redundancy deal in the HSE , 25% of the lucky recipients were not on the payroll.
As regard the suggestion that we go solo and take unilateral action- the reaction of the ECB would be that of Insp. Harry Callaghan – “make my day”.

At the time, some members of Dublin’s financial community argued (comically) that NAMA bonds were a form of “quantitative easing”. However Karl’s proposal (tearing up or indefinitely deferring promissory note payments) really is QE … exclusively for the Irish.

Realistically though, how can ECB allow CBI do a solo QE run? It undermines the notion of monetary union in a pretty fundamental way.

Rather than special pleading, why not use the promissory note story to argue that government bonds from all 17 eurozone countries get the QE treatment – purchased by ECB and retired. Isn’t this how the euro debt crisis gets resolved anyway? Mario Draghi probably already thinks so.

The ECB will not allow Burning the ELA at this point in the crisis as it would amount to QE. They Troika might just allow a lengthening of term to lover the NPV but probably not yet. As a reward for closing the Primary Deficit possibly?
You raise an interesting medium term possibility. What would happen if the Fed, old lady and EcB decided to cancel all the bonds they bought. Would it really lead to hyper inflation ?

“Why should the powers that be in the EZ agree to any reduction in the PV of the PN. This is a society that pays it public servants more than it peers, demands less work from them, pays above average dole, taxes the average worker less. Moreover, when the previous govt does a redundancy deal in the HSE , 25% of the lucky recipients were not on the payroll.”
Because in doing so, it can remove thr fiscal burden attributable to banking, and then the state can get onto sorting the othe
R issues.

@Colm Brazel
“The ECB, the ICB, the Regulator, the lack of regulations and oversight of the distribution of cheap lending into the Irish economy, were all implicated in odious debt Irish citizens are made victim of instead of the above institutions.”
Nothing in the treaty concerning the ECB gave it any authority to regulate the Irish Banks (it was a big mistake of the negotiators of the treaty,but this is another story). The lack of regulation and oversight was entirely the responsibility of people elected by the Irish people or named by those same people.
Like the Greek and maybe the Portuguese ,Ireland might be obliged to default (I hope not ,this would not be a lot of fun for anybody , neither debtors nor creditors) ,but it is a little bit too much to ask the ECB to pay for a partial default.

It seems to me that there is a conspiracy afoot; push thr Greeks into default by making more and more outrageous demands. Push the Irish into giving up any and all sovereignty (because they won’t do jack..). Use the two as sticks to beat the Portuguese. Accrete more and more control centrally.

The global banking system is integrated – almost fully so.
From 2007 to 2010 approx 1 MTOE less energy in the Irish Transport sector alone was burned according to official Irish energy balance figures.

This is the approx equivalent to the entire amount of oil burned in Irish Private cars during 1990……..
This energy must flow somewhere else.
The IEA which uses slightly different methodology recognized a rise of 1.2MTOE TPES in the Swiss energy systems between 2007 & 2009 – the only major western european country to have positive energy stats for those 3 consecutive years.
Unfortunetly the 2011 IEA OECD paper is pay per view until 2012 – but I imagine a stabilization of core Germany TPES in 2010 whilst witnessing a continual decline of peripheral energy systems.
You will find this is a artifical extraction of credit / energy to keep the core alive & well.


… and UK foreign office officials have been briefing that Merkel has said in private that Greece will default.

@ Eureka

“In this new Europe a national central bank can only monetize debt if its citizens pay it back.”
When the FED does quantitative easing it fully intends to sell back its federal bonds sometimes in the future and have the US citizens pay it back.
The ECB has lately bought a lot of sovereign debt on the secondary market (and is stuck with a large quantity of Greek debt) .It certainly is monetizing a lot of sovereign debt.

@ Overseas
Would love to see a compare and contrast of the various quantatuve easing/debt monetization strategies.
I don’t really understand it.

@ Overseas commentator

When the FED does quantitative easing it fully intends to sell back its federal bonds sometimes in the future and have the US citizens pay it back.

And Greenspan told you this?

The issue of burden sharing is likely to get a better reception when growth returns to Europe and governments of struggling countries are implementing reforms that would help their economies.

A few year’s ago, Sweden’s response to its banking crisis in the early 1990s was often cited in Ireland. Curiously, there was no interest in the other reforms that were implemented.

The Swedish and Finnish states today have no net debt but they have big surpluses.

This comment from the OECD on Finnish educational reforms should appeal to the Irish left but strangely for the first time during an economic bust since their birth, the neutered Irish trade unions are without a credible voice inside the tent.

Finland is one of the world’s leaders in the academic performance of its secondary school students, a position it has held for the past decade.

This top performance is also remarkably consistent across schools. Finnish schools seem to serve all students well, regardless of family background, socio-economic status or ability.

There are no fee paying schools in Finland.

Elsewhere in the economy, the farmers are worried about keeping the CAP welfare system intact against the backdrop of a global food commodity boom.

Two years ago, the attempt by Glanbia, Ireland’s top milk processor, to purge its low-margin Irish dairy division and concentrate on cheese making in the US, evoked little reaction.

Fonterra of New Zealand, responsible for more than one-third of international dairy exports, reported this month that it has broken its record for the highest export month with 246,000 tonnes of dairy products loaded on ships during December.

In March 2011 Fonterra shipped 229,000 tonnes of product, but continued growth in global demand for dairy products combined with record milk production early on in the current dairy season had led to another spike.

In December, Fonterra closed the door on an export container every 2.7 minutes — 546 containers a day. Fonterra’s exports account for more than a quarter of all NZ exports.

Last Monday, Greencore, the former State-owned Irish Sugar Co., delisted from the Irish Stock Exchange and began trading in London. In Ireland, the firm had planned to become a property developer during the boom following the closure of its sugar plants, with compensation provided by the European Union.

Its manufacturing facilities are in the UK and the US and it employs about 7,000 people.

Elan sold its Athlone facility last year and moved its primary listing to New York. Only 5% of its shares are held in Ireland.

The big indigenous companies become international rather than Irish:  2% of CRH’s revenues come from Ireland, about 2% of its 76,000 payroll is employed in Ireland, 90% of its shares are held overseas while its primary stock exchange listing is in London.

Why wouldn’t the Irish pray: God bless America?

“A German government document leaked to the Financial Times late on Friday, and seen by Kathimerini English Edition on Saturday, proposed a commissioner to have veto powers over Greece’s budget decisions if it failed to meet demands set by foreign creditors.

“Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time,” the paper said. Under the plan, Athens would also legally commit itself to paying its EU-IMF loans before spending cash on public expenditure.

Despite the backlash in Athens, the German plan received open backing from a high-ranking official in Berlin Sunday.

“We need more leadership and monitoring in implementing the course of reform (in Greece),” German Economy Minister, and vice chancellor, Philipp Roesler said in an interview with Bild newspaper to be published Monday.”

@Eureka I share your anxieties re the above

All this talk of squashing and/or deferred
PN repayments should point to the need to appoint some German Bocht Marshalls to each department in the Irish Public service.

The Irish have a tradition of exaggerating their miseries. The Irish language book An Béal Bocht by Myles na Gcopaleen being a rich example of the genre. The Irish pretend to be far more miserable than they actually are;

Most of their programme managers get paid 3 times the salary of Sarkozy himself.


Austerity is doing deep damage to our educational system at second level. People are leaving/retiring at an incredible rate. They are not being replaced. Cutbacks are imposed everywhere. Workloads are increasing dramatically in return for decreased salary.

Met some teachers in Ukraine some years ago. No male teachers at second level; not enough salary to run a family. Most of the teachers on partime hours and rates. Few resources/ecquipment for science teachers. We’re getting there.

We need a referendum and a deep debate on what the Irish people want for their future.

Don’t let the Bocht Marshall get you 😉

@overseas commentator

Re “but it is a little bit too much to ask the ECB to pay for a partial default.”

I’m not only offering a lifeline to the Irish, I’m offering one to the ECB.

Without partial default for Ireland, both are gone!

Too bad if you or the ECB can’t see this.

In years to come, after our departure from the Euro, the position of the ECB against partial default will be seen as something to our benefit hastening our departure.

I come from the view though that the ECB wants Ireland out of the euro; but not before as much as possible is looted from the Irish economy before it becomes unsustainable that we remain. I’ve yet to see proper evidence contradicting this view.

@ Colm Brazel

Irony or not, the point about the Finnish reforms was that they were introduced when the economy was bust.

Teaching is a prized profession.

All teachers are required to have a master’s degree and they earn as much as doctors but still less than Irish counterparts.

As to needing ‘a referendum and a deep debate on what the Irish people want for their future.’

You’re a naif if you expect more than a shouting match.

In Aug, it will be 5 years since the onset of the credit crunch; if that isn’t long enough to know where to head, the slow boat to China will never arrive.

@ All

For ‘threat’ read ‘that’.

@ Gavin Kostick

Also worth recalling in this context is the elephant that was not bagged at the Croke Park meeting. Colm McCarthy has a detailed description. It is a very large one and goes under the nickname “Denial”.

The only comment that I would make is that the government is not really in a position to have a negotiating strategy other than to persuade the country’s creditors that it is still a case of “can and will pay” rather than “won’t pay”.

The dividing line between “can” and “will” is not alone difficult to establish but actually shifts in line with the factors deciding the ability to pay. There is no puzzlement on the part of creditors on this point. What they are concerned about, in all likelihood, is the fact that the penny does not yet seem to have dropped in government and other circles that there can be no let-up in the reform effort.


“…the penny does not yet seem to have dropped in government and other circles that there can be no let-up in the reform effort.”

I thought the key point of Com McCarthy’s Sindo piece (which probably deserves a post of its own) is that, not to mind ‘no let-up’, they haven’t even started – and in some cases are retreating.

@ Paul Hunt

Agreed!. But I think this assessment is a bit harsh. In any case, “le crunch”, as the French now call it, cannot be much longer delayed (unless there is a miraculous turn-around between now and the next Troika review either in the economic fortunes of the country or the level of cop-on in the government and other circles).


My harshness is proportional to the delay and lack of ambition this government is exhibiting and the previous government exhibited. A lot of the reforms Colm mentions could, and should, have been kicked off long before now – and they would be bearing fruit.

@ Paul Hunt

Again, I agree! But the explanation is the opposite of what Colm McCarthy describes in his article. Voters did not vote in a reforming government but a coalition that is its very antithesis. And they did it with their eyes wide open.

By the way, you will have seen that Seamus Coffey, in his usual methodical and well-documented way, has begun a thread describing the failure to cut current expenditure. It will draw little by way of reply because very few, either in government, academia or among the general population, are yet willing to admit that the emperor has no clothes.

It will take the Troika to drive home the fact.


I expect we could long debate the intent of the huge majority who willed this colaition government in to place, but, to give the previous bunch an unambiguous P45, as Colm puts it, they could only use the candidates the then opposition factions offered.

I doubt if it would be strectching things to suggest that a majority of voters wanted not just to be rid of the previous bunch in a comprehensive fashion, but to desire a change in the way the business of government is done – and what business government does.

The current government cannot avoid a mandate for reform. Even if this may not be deduced directly from what a majority of voters decided, good governance demands it. Fiscal austerity on its own is a dead end; it must be accompanied by structural reform. The latest opinion polls suggest Labour support is collapsing and that FG’s is softening significiantly. The curent approach is auguring inevitable electoral defeat down the road. Fortune favours the brave.


Carswell article is interesting but nothing new. Sadly, the penny hasn’t dropped : So we get more loans .

” The EU agreed last July to change the EFSF’s rules to allow it to recapitalise banks but only through loans to governments ”

I’ve argued the point the EFSF must be reengineered and can be reengineered to go further than a pure lending facility.

What we have at ECB level is the refusal to deal with the need to restructure debt. So the answer proposed by bankers leading the politicians by the nose is to give new loans to pay for older loans based on previous loans.

We create a deadly mixture of austerity and further loans looting the Irish economy. Instead, what we need is debt writedown/burden sharing.


The only comment that I would make is that the government is not really in a position to have a negotiating strategy other than to persuade the country’s creditors that it is still a case of “can and will pay” rather than “won’t pay”.

That is absurd. Are lenders, banks, creditors selling you that 🙂 You are a credit to those who hold odious debt against Ireland who want their money back extracted from Irish taxpayers.

This is now incredible incompetence of the highest order.

At a minimum the ¢30bn approx of PN’s outstanding on IBRC require to be written off; the mechanisms for doing this have been gone over in earlier discussion.

We need to grasp the nettle here and not fool ourselves that this debt can be repaid on top of the austerity that will be required to bring down our budget deficit.

“From an Irish perspective, it is noteworthy that the Government did not seek any reduction whatsoever in the Irish debt burden and has committed itself to paying its debts in full,” he said.

“At the same time Greece will benefit from a 50 per cent writedown of its debt. The Government is clearly of the view that Ireland’s total debt burden is entirely sustainable and manageable. This is markedly different from the rhetoric we heard from Fine Gael and Labour before last February’s election.”

Mr McGrath said it was deeply disappointing the Government was still not in a position to recoup some of the massive costs incurred by taxpayers in rescuing Irish banks.

“The Taoiseach should have sought an explicit assurance in the communique that new powers being given to the European Financial Stability Facility to recapitalise European banks could be used to reduce the ongoing cost being incurred by Ireland in recapitalising Irish banks.

“There is now a compelling case for this issue to be revisited given that Ireland had to recapitalise its banks at a time when no European fund was available to support it.”

Even FF are waking up to the fact we need a burden sharing agreement comparable to that extended to Greece.

2016 will be an interesting year even for those travelling first class on the Titanic.

@PR Guy

The scuttlebutt in the Greek diaspora is that the Greek middle class are sick of corrupt politicians and tax evasion by the rich. They would now welcome de facto (legal definition) government by the European Commission with an election after the EC has whipped (literally) the country into shape.

The action by the judge has broad public support.

So there is no need to privatise our Semi-States after all.

Why not setup another State Bank called the Irish Asset Bank (IAB) with our Semi-States and some natural resources assigned as assets?

Get these bodies valued by some of our more optimistic Surveyor/Auctioneer types at say €30 billion.

This important asset rich/cash poor bank would suffer liquidity problems from the start.

Using Section 5B(d)of the Central Bank Act of 1942, as mentioned by Karl Whelan above, the Central Bank could take the €30 billion in assets in return for a loan at a nominal rate of say 1% paid by the Semi-States from their profits.

The IAB could give the €30 billion to the Government to wipe out the Promissory Notes of the IBRC while allowing a saving of €3 billion to the Exchequer per annum.

Anybody? Please explain the flaw(s) in my logic…

“Capital is born by representing in writing – in a title, a security, a contract, and other such records – the most economically and socially useful qualities [associated with a given asset]. The moment you focus your attention on the title of a house, for example, and not on the house itself, you have automatically stepped from the material world into the conceptual universe where capital lives.”—Hernando De Soto , The Mystery of Capital.

“All sorts of things can be money, but there has to be some physical realization, some brute fact – even if it is only a bit of paper or a blip on a computer disk – on which we can impose our institutional form of status function. Thus there are no institutional facts without brute facts.”—John Searle, The Construction of Social Reality.

“Money plays two different roles, as structure of financing, as a quantity that I called power of x, and as means of payment as quantity of power of y. It is not the same money that is cash and that is capital. All the economists know this, for the great economic question since the crash has been: how is one to build capital with only a little cash, or at the limit, without cash at all … [ … ] … The bourgeois sets the example, he absorbs surplus value for ends that … have nothing to do with his own enjoyment: more utterly enslaved than the lowest of slaves, he is the first servant of the ravenous machine, the beast of the reproduction of capital. ‘I too am a slave’- these are the new words spoken by the master.”—Gilles Deleuze and Felix Guattari, Anti-Oedipus.

“Cash is depotentiated capital: an enterprise cannot realise its capital, only a’private’ individual can, but this is effectively a translation from one kind of currency (fluid finance capital) to another (purchasing capital). In the process of translation, money is severed from time-reference, whereas, in capital proper, time and money implex into each other. You can buy time, and in that time you can accumulate more capital, with which you can buy more time, in which…

It’s important to note that, in the humanist-Marxist-socialist-workerist model, the process of cashing out capital into labour also, supposedly, dispenses with fiction. At the moment when labour-time reasserts its rights, the fictional will be unmasked, its power dissipated. Yet, as Jameson rightly insists, we are amidst “the emergence of a new realm of image reality that is both fictional … and factual.” “—-Mark Fisher, SF Capital.

Someone suggested: “What I mean is, imagine an island with only ten people. A hundred dollars is issued to each person, but is issued at interest such that they each have to pay a hundred and ten dollars. So you have 100 x 10 dollars in the system, but a debt of 100 x 10 + 100. Everyone has the same bill. They all owe the same thing. For a person to fully pay off their loan and interest, money must be either borrowed from outside the system, exasperating the debt, or come from within the system, from somebody else’s loan principal. So for a person X to owe 0, someone else must have X’s 110 debt, plus their own original 110 debt. From here on, every dollar of profit X makes, someone must owe a further dollar of debt, which to me seems like a violent thing. The neoclassical argument that this doesn’t happen is that money has a certain circulation velocity. That the person 110 dollars in debt can hold on to that 110 that is not his long enough to make money which allows him to shift the debt along. So theoretically, everybody and nobody is in debt.”

Isn’t this the (immanent) internal contradictions of capitalist accumulation that Marx mapped out long ago, or what today economists and bankers (without understanding the nature of this inherent contradiction) euphemistically term “systemic risk”, the buzz term of the past few years, especially since the financial meltdown?

About such an island with ten people, though, first we’d have to examine what the mode of production there actually is, that is, the combination, the meshwork, between the means of production (all the resources of the island, including the ten people) and the relations of production (the social structures, the rules, regulations, and laws that they live by ie the social-symbolic order that applies, and how they relate to the means of production). In other words, is it, say, a feudal economy, a proto-capitalist economy, a late-capitalist economy? Is it a “gift economy”, a ‘barter economy’, or a ‘monetary economy’? Is the island “owned” by anyone (is it ‘real estate’) or is it a Commons? Is there a ‘central’ bank, a monetary authority that issues and controls the money supply? And is that bank a cooperative or controlled by one or two of the population? Are its advances of money in the form of loans or in the form of asset exchanges (eg mortgages, liens, etc)? Or are they in the form of investments, whether equity or ‘free’?

Though the quotes at the beginning of this post distinguish between money or cash and Capital, money is nevertheless the ENGINE of capital and of economies, the motor or lubricant by means of which economic behaviour and activity is initiated and Capital is accumulated. You can have a monetary economy without capitalism, but you can’t have capitalism without money.

The fundamental ‘internal contradiction’ underlying money relates to its status as a Sign without referent (a Master Signifier, a signifier without deterministic signification, a polymorphic void of negativity that nevertheless initiates the need for meaning and significance): cash is NOT a representation of money-value but is “self-referential”, it is ‘the thing itself’, it does the work of money, it is operational, and so, once accepted, engineers economic reality. The belief that money is ‘just’ a representation of wealth, assets, resources, etc, is the mistake, the symbolic fiction, made by near everyone, including the priests of capital, from economists to bankers [ and central bankers] to entrepreneurs. Money is NEVER ‘backed’ by anything … but once money is created (by the issuing institution, whether central bank or otherwise) it thereafter is a generalized medium of exchange, it can be exchanged for – potentially – anything, commoditiies, other currencies, etc. Indeed, it’s the superstition (this is why capitalism is pseudo-religious, is religio-genic) that money needs to be ‘backed’ by Real Money (eg gold, land, property) that causes all the problems, that money must have some irreducible, unchanging, “inner essence”, some mystical intrinsic Value that is the source of all real value (for Marx, of course, the source was labour power). No, once it’s created and accepted (such acceptance determined by the big Other, the belief that someone else believes in it as money, as a legitimate medium of exchange) it’s automatically exchangeable into anything. The problem (or rather, horror) of the Gold Standard was that people ‘really believed’ that money was ‘really’, essentially gold, and not entirely separate, an abstract materiality (forgetting that it was money that enabled the purchase of gold, or anything else). The notion of organizing and basing a whole economy, not on the actual needs of that economy (food, clothing, health, housing, education, transport-communications), but on the gratuitous, arbitrary supply of a totally useless, merely decorative, commodity (gold), is extraordinary in its sheer irrationality and bizarre superstition. And such a system caused – despite its imagined stability [stability for a tiny wealthy elite]; for the majority, it was a stability of poverty – untold havoc during its operation, right up to the 1920s/1930s. What we’ve had since then is merely the substitution of a gold standard for a ‘debt’ standard (claims on, usually financial, assets or obligations to pay). So consider, then, what’s happening now in the Euro-Zone, the crisis, of how – for the European Central Bank (which is a central-distributed network, with each member country also having their own mini subsidiary central bank), the IMF, and other monetary institutions – it is being dealt with, managed, on the old anachronistic, superstitious assumption that ‘money’ has still to be ‘backed’ by some real intrinsic property, leading to the demented current policy where the European Central Bank is LITERALLY burning, terminating money (fantasies, fears of the hyperinflation of the early-1920s recurring; but the comparison should be with the late-1920s/early-1930s, of collapse after a credit expansion/boom, with deflation and austerity, not inflation; and we all know what that led to, a fact of history that the unconscious compulsion to repeat it is currently in the process of repressing). Ireland is the obvious case where this is happening, where money has been newly created (both by the European Central Bank and Ireland’s national Central Bank) to the tune of around 190 Billion Euro (138 billion from the ECB and 51 billion by the ICB); this money – obscurely called Emergency Liquidity Assistance, specially created to bail out all the insolvent zombie banks (they’re ‘zombie’ banks because they are dead but do not yet know that they are dead) – is now circulating in the Euro System and beyond, and there’s no inflation, no mass hysteria, no desire to retreat from money into commodities. Yet, these unreasoning institutions are demanding full repayment of these amounts … and from the Irish state, the Irish government. Hence the savage, imposed austerity measures by the agents of capital – sociopathic cutbacks in essential social services, tax increases, unprecedented unemployment, economic regression and collapse, etc – but all of these measures are simply, ultimately, for purposes of raising money from the mass of Ireland’s working population that will then be paid back to the central banks which will then … wait for it, it’s too crazy – DESTROY the money, terminate it, write it all off, remove it all from circulation, contract the money supply, by means of a simple accounting entry in their constitutiively contradictory balance sheets (the concept of ‘assets’ and ‘liabilities’ is of course entirely redundant and superfluous in the case of a monetary-symbolic issuing institution, as it’s entire role is as a Symbolic guarantee of the monetary system, not a ‘physical-empirical’ one). So we can more clearly see what’s really happening here: capitalist power is reasserting itself, class structure is being reinforced: whole economies are being devastated via unnecessary cutbacks in order to preserve elite class structures, not to really solve economic problems and needs. All that money already exists (ie all the debts can be simply written off and nobody – no one whatsoever – would lose anything). Central banks can never ‘lose’ money, as they are the institutions with the sole authority to create it ab nihilo. Yet here, having created it, they now want to destroy it again, a move which, again, is based on a destructive and irrational superstition about the actual symbolic nature of money …

Should this absurd economic pathology proceed, be allowed to proceed, Ireland’s population seemingly pacified into passive-aggressive consent, then Irish people seriously need to consider establishing LOCAL new currencies to initiate and facilitate economic activity and development among or in the most depressed sectors and regions of the economy. Otherwise, it’s reflexive impotence, long-term poverty and psychoanalytic depression, or emigration.

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