Briefing Paper for Oireachtas Finance Committee

I’m appearing at the Oireachtas Finance Committee this afternoon, along with Brian Lucey and Stephen Kinsella, to discuss ELA and promissory notes. Here‘s a copy of a briefing paper I have provided to the committee and here are my opening remarks.

I’m told that the meeting can be watched live online at this link by choosing Committee 4 and also on UPC channel 801.

46 replies on “Briefing Paper for Oireachtas Finance Committee”

In light of the harsh comments you have received lately, may I begin by saying that you were all looking only gorgeous.


Very clear … hope they understant it and get on with the serious lobbying so that we can avoid an April 1 disaster …

Blind Biddy has just nailed 17 copies of your opening remarks to the front door of the ECB in Frankfurt.

Unconfirmed reports that Biddy and Herr Professor Sinn of IfO Institute are shacked up in a chalet in Baden-Baden where she is explaining the nonsensical logic of the ‘owl and the pusscat’ over a spot of dinner as a prelude to poor oul Sinn re-sitting his Target-2 undergraduate examinations. project-syndicate is on stand-by.

Well done!

d-day is march 31 this year

Update: Irish Times

Negotiate new terms on promissory note before April, economists advise

Prof Whelan [not in a photogenic mood apparently] said any discussions between the Government and European authorities about restructuring the promissory note should take place in public as much as possible. “The real question is a political one”.

@ karl

Thank you. Just read the briefing paper cover to cover. Excellent piece of work. Cheers.

I’d like to to offer you a pint, yes, one pint, in the event of an actual reduction in principal on the PNs or factual article relating to PNs in the Irish/Sunday Independant. Which ever comes first.


From Karl’s opening remarks:

“…a lot of commentary still focuses on the idea that the Irish government should change its policy in relation to payment of unsecured IBRC bondholders. It is worth stressing, however, that the amount of unguaranteed unsecured IBRC bondholders remaining is small (less than €1 billion)…”

From the RTÉ report:

“Professor Brian Lucey has told an Oireachtas Finance Committee that it makes no sense economically or morally to pay the next tranche of the €3.1 billion owed to Anglo Irish Bank bondholders on 31 March.”

From Karl’s opening remarks:

“…I want to note that it is not the case, as has been reported in various media stories, that the ELA funds have been borrowed from the ECB.”

From the Irish Times report:

“The bank in turn borrows money for the ELA facility – traditionally a short-term measure – from the European Central Bank (ECB).”

Le sigh.

At least you’ve managed to explain it to me, Karl! 🙂


Trojan work by the three of you. Other than putting on a skit with you playing the Central Bank, Brian playing Anglo and Stephen playing the Govt and each of you handing over IOUs and fivers, you couldn’t have explained how promissory notes, their funding by the Irish govt, ELA and interest all work. Well done!

What do you think would be the correct response by the ECB should Spanish cajas seek promissory notes to prop up balance sheets that have yet to reflect the scale of property loan losses in Spain? What criteria do you think the ECB should use in agreeing to the NCB in Spain creating ELA for its own shaky banks? Do you think that if Ireland gets some concession from the Central Bank of Ireland – but under the auspices of the ECB – that it opens the door to special pleading across the EZ? What criteria do you think the ECB should use for agreeing deferrals in promissory note payments by sovereigns across the EU – debt:GDP, GDP growth, deficit:GDP, “fairness”?

@ Karl

To “print” the money initially required the consent of the ECB, no?

With this came the implicit (explicit?) promise of the Irish CB to destroy the money, no?

If this was just a Irish CB accounting exercise then Mickey “Emigrate for the Lifestyle” Noonan would have no need to go to his European masters to beg their permission, no?

So it’s not really within our own power to do this, no?

@ Karl Whelan

Very good paper and remarks. Thanks.

Some thoughts about structuring the progression of this issue based on your paper – I’ll try not to keep referring back to you paper or this post will go on forever.

Ultimately, whilst the surrounding political good-will can be worked on, the ask has to be made – and accepted – at ECB level.

So the question arises as to who is making the ask and in which forum.

It looks to me like the ICB and the ECB Governing Council –

The ECB Council is here:

And the executive is:
Mario Draghi
Vítor Constâncio
Jörg Asmussen
Benoît Cœuré
José Manuel González-Páramo
Peter Praet

A mistake, I think, when looking for a committee-type structure to pass a motion is to concentrate solely on ‘champions’ and look for them to over-ride objections. As you noted, in practice the ECB moves by consensus, so in advance of any meeting in which a decision like this can be made, all members of the executive need to be researched, their issues and concerns identified, and appropriately briefed.

The governors of the EZ Central Banks should not be ignored either.

The pragmatic shift under Draghi away from an ideological position should be noted.

The general argument would, I think, look something like this.

In response to the international financial crisis a number of successful unconventional measures have been taken to retain confidence in the Eurosystem.

One such measure has been the use of PN by the Irish Government as collateral for ICB to provide ELA for the financial system.

This arrangement was to ensure that there were no severe shocks to the EZ financial system at a time of uncertainty, and was the first time that PN were used for such reasons in the EZ [check for truth of this].

The European situation has moved on, and the adjustment of the structure of the PN repayments might usefully be looked at again to ease sovereign pressures, without causing disruption in the Eurosystem.

An unrelated point:

“When this period is scheduled to end, the interest payments on the note will go from having no impact on the GGD this year to a €500 million impact in 2013 and a €1.8 billion impact in 2014. Even though the cash flow impact of the notes will not change during these years, the government will need to find an additional €1.8 billion in spending cuts and tax increases over the next two years if it is to stick to its official targets for this measure of the deficit.”

On this, if there is no movement on the PN, could someone with the brains of a Seamus Coffey, see if it is possible to suggest moving this e1.8 figure so it doesn’t appear within the official measures – on the basis, if I have it right, that this interest will ultimately in large part come back to the state.

I can think of two reasons why there will be no progress on this issue in the shirt term
*the focus is on Greece so key decsion makers in the ECB have no time to focus on this issue
*as Jagdip points out this potentially opens up a Pandora’s box elsewhere so there will be resistance to change

If we move unilaterally without the consent of the ECB we could risk the support of that institution and it could be construed as a technical sovereign default given that the Govt have provided a letter of comfort.
My understanding is that the PV of the annual payments on the PNs has to come to about 30bn plus when discounted at a notional sovereign yield. I cannot see how lowering the annual payment to a low number and extending into the long term gets you back to 30bn.

I think negotiation is a red herring. No matter how skilled you are, you will get nowhere if the other side is a) unwilling to listen and b)you carry no credible threat. So it is either “suck it up time” or go the whole hog and leave the EZ, EU, adopt our own currency and close the primary deficit and or print.

@ tull mcadoo

“*the focus is on Greece so key decision makers in the ECB have no time to focus on this issue”

Argument: Draghi/ECB has underpinned the EZ banking system by offering a great deal of cheap money and taken away much of the taboo on accessing it.

When Greece defaults, which is the plan – and possibly even defaults without meaning to, the March bond – there will be a shock, which the idea is to contain, but one wouldn’t want to take it casually.

The fate of the sovereigns and the banks are intertwined.

One route this shockwave will take is through the sovereigns, probably Portugal, Ireland, Spain, Italy.

It would be useful to support the creditworthiness of these sovereigns to discourage destructive speculation against them, particularly if it can be done securely within the operations of the ECB and without prejudice to any other party.

The Greek crisis is the most pressing, but no single issue can be taken in isolation. The restructuring of the PN is part of that.


That is a fair point. However, there is a timeline here. If the EU was ahead of the game it would have dug its firebreak. That would protect the remainging peripherals. If that was the case, the PN issue would have been boxed off by now or nearly done.

TO date, the EU has never been ahead of the game and has always palyed catch up. So arguably nothing gets done until the crisis gets crisisier.
In addition, having thrown Greece to the Wolves, we do not know if the Germans have plans for other peripherals.

Worth looking at this again …. from about a month ago …

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

So the ~30 on PNs out to the limits of Irish time – plus that 20 billion that Herr Geithner owes us [lil ol lettter of comfort will do for the metrics and it can go back in the NPRF for a wee spot of leveraged productive stimulus] …. and spring might arrive early this year ….

Well done to the three of you.
As I said in a previous post, Karl I think you will have done the state some service if your delaying in paying the principle on promissory notes idea allowed by our friends in Europe. I genuinely believe the likelihood is if you had not come up with it, it would have been beyond the imaginations of anyone in the dept of finance.
I listened to the majority of the meeting yesterday.
I thought the two most interesting contributions from the floor came from Kieran O Donnell and Joe Higgans.

Kieran O Donnell seemed to allude that what the Dept of finance are looking at trying to reduce/delay payment only on the Interest on the promissory notes. He may have some insider knowledge of current negotiations.

Joe Higgins questions were unusually concise and apt. looking at the big picture. It seemed a good day for it.

Is it possible to watch this after it is finished?

All the lniks on Committee 4 don’t seem to play for me (perhaps because they are only meant for live viewing?)

ELA, LOTR and all the acronyms should be shunted into one NAMA style holding pen acronym –

EAP – Extend and Pretend


Karl has already done the state a great service through his work on this issue, even if what eventually emerges from the ‘black box’ of government negotiations with the Troika and the EU falls short of the mark. Hopefully,his paper will now achieve a wider distribution amongst deputies and senators than those who are members of the Finance Committee, promoting a more informed discussion about the options and what can be realistically achieved than the usual argy bargy that passes for political debate.

@ Eamonn

“Joe Higgins questions were unusually concise and apt. looking at the big picture. It seemed a good day for it.”

Given his stance on the household charge, id argue he still doesnt see the really big picture.


what is your subjective probability that an Irish request for restructuring of the IBRC promissory note will be successful? It may be that the probability of success if not significantly different from zero. Clearly, you believe there is a fighting chance.

Assuming you are right, the critical question is how to go about convincing Mario Draghi. The stakes are high. Ireland should simply hire Goldman Sachs to carry out this negotiation on our behalf.

The paper is helpful but overall its a lost opportunity to pinpoint exactly how the design of the EMU and in particular the interelatedness of participating NCB’s works in practice. ELA is a lifebelt for members of the EMU in difficulty, but it comes with chains attached and many inconsistencies. The major one, the biggest design flaw, is that ELA through the PN repayment system is a liability set against the participating NCB. These liabilities are not centrally absorbed through some ECB institution such as the EFSF or the ESM; or indeed, a mechanism where losses can be transferred through some fair mechanism onto the balance sheet of other NCB’s in surplus through their trade balances and excess liquidity. This is a system firewall operated by the FOMC for the FED that is opened when its participating NCB’s get into difficulty. The ECB operates a one to one relationship with its NCB’s, it should be a system secured by a relationship of one to many for each of the NCB’s measured against other NCB’s and the ECB itself.

A curious piece of the preparatory doc was this:

“To summarise, the ECB must be consulted when ELA is issued and it will assess whether the issuance of ELA interferes with its monetary policy stance. The ECB also views loans to insolvent credit institutions and non-temporary liquidity support programmes as illegal. And the Governing Council can vote at any time by a two-thirds majority to stop any ELA programme.”

I like to call a spade a spade. It would appear to me from those words that the PN’s used to pay off IBRC debts of circa €30 bn + is ILLEGAL; that the govt guarantee using the ELA method for the purpose of IBRC debt repayments made to our ICB, is ILLEGAL. IBRC does qualify as an insolvent credit institution ?

He didn’t mention the household charge yesterday Eoin as far as I remember.

I would suggest a listen if you get a chance.

Alex white successfully did the same trick as the woman at the troika meeting tried and failed with Vincent Brown. After he asked a very awkward question, she took more questions instead of asking for an answer.

Charitably Joe Higgins let him off the hook but the Academics did make genuine efforts to answer the questions when they got a chance to answer.

@ bg

Irish request for restructuring of the IBRC promissory note will probably be highly unsuccessful. The Bundestag is not in the mood for picking up any losses. Relief to us would signal opening the floodgates to Greece, Portugal. Enda Kenny posturing re honouring all our debts doesn’t help, nor does pretence our economy is returning to growth.

There is merit in considering some other method to legally get a waver on ‘the guarantee’ in some international court of justice because of the fraudulent concealment of the true cost of IBRC bailout to Irish taxpayers perhaps others would like to comment upon?

@ BG
“Assuming you are right, the critical question is how to go about convincing Mario Draghi. The stakes are high. Ireland should simply hire Goldman Sachs to carry out this negotiation on our behalf.”
How do you know they haven’t?

@ Veronica
In the wise word of John Giles.
Honesty of effort is your starting point.
I agree that Karl has made a valiant effort for all the right reasons and should be commended regardless of the outcome.
However it would be sweeter, I am sure every one would agree, if we could stick one in the onion bag.

@ colm

“There is merit in considering some other method to legally get a waver on ‘the guarantee’ in some international court of justice because of the fraudulent concealment of the true cost of IBRC bailout to Irish taxpayers”

Well go and get on with it then! best of luck!

There is one snag however. The government and central bank were willfully turning a blind eye and in fact were aiding and abetting the banks to conceal losses.

To date the Irish haven’t been successful in negotiations with the EU/ECB. Irish officialdom have not been willing to push it to the brink. The Irish state should never have accepted all of the banks’ losses. It was a problem that should have been shared. With the passage of time, our options have been cut.

I’m not saying we should be Ahmadinejad-ing our EZ partners on a monthly basis, but we should have made a stand when the bank losses became apparent. At this stage the ECB know they can face us down.

Regarding Promissory Notes – if we’re only hoping for a delay – probably a polite approach is correct. I don’t think the ECB has to worry about setting a precedence. All the ECB have to say if that after a state has spent a large whack of their gnp covering losses then …etc.

@ Karl Whelan, thanks for your efforts on this. I’m still addled by the numbers of politicians and media folk that were banging on about the interest rates on PNs. And the length of time they were doing this. Were they simplifying for public consumption or did they not understand?

Yup, the arguments proposed by Karl are weak; but only because they do not go far enough. KW wants deferral of the payments, not their abolition.

“The legalistic arguments against restructuring the notes are relatively weak. IBRC is a solvent institution that is being provided with sufficient funds to repay all of its debts over time. A deferral of ELA does not change that situation and so it does not bring us closer to monetary financing of an insolvent institution. And any programme to pay back the ELA eventually technically counts as a temporary programme.”

The problem is his notion that “IBRC is a solvent institution”. No, it isn’t, its a fraudulent, corrupt, toxic bank facing investigation and will be found guilty re share price manipulation, B&B fund transfers to mislead creditors, shareholders, markets, director loans,,,,,,,,for starters.

Without the injection of PN’s its insolvent, how can it said to be solvent. If it is ‘insolvent’ technically the ECB is in breach of its own rules against support through ELA for insolvent institutions.

Plus it fraudulently misled the Irish state in seeking state aid. PN’s on IBRC on those grounds, should not be repaid.

Prep paper could have had an analysis of the budgetary implications on raising the:

” The payments are €3.1 billion per year every year on March 31 through to 2023 (the first payment was made without much fanfare on March 31, 2011).
A payment of €2.1 billion is due in 2024.
Payments of €0.9 billion a year are due from 2025-2030.
A final payment of €0.1 billion is due in 2031.”

Some graphs there would have been helpful to show the likely tax take plus implications of other budget deficit reductions say over the next 5 years as the paper is quite vague on where the money to pay for PN’s will be found ?

To simply ask for rescheduling of these payments is disastrous.

3 Teachers pets grasping for TINA the Teacher.

The euro is dead – its entering a sort of Heat Death.

Its the natural consequence of the Market state (the euro system is perhaps the ultimate expression of this anti state system)

Market states are extremely effiecent in running down systems – much more so then nation states – so they appear very profitable until collapse.
But they cannot create net wealth – they are simply not designed that way.

They cannot be even designed to destroy – they dismantle through the mechanism of entropy.
The poltical mechanisms / levers are simply not available to pull.
Bomber Command will always remain a idea rather then physical product designed to Bomb.
This idea of treating these debt numbers on various balance sheets as a physical product rather then a abstract idea goes to the very quick of the failure.
Contrary to what the Dim chairman states these numbers are notional – what else could they be ?


Good paper. It seems the true cost of the interest portion of the PNs/ELA is the cost of the interest payments on the Intra-Eurosystem Liabilities, which arise as a result of cross-border money flows. However I’m not clear on whether these liabilities occur as a result of all cross-border money flows, or only cross-border money flows with money that was created via ELA.

Turn the clock back to 2006. Let’s say there’s a German investor (call him Josef) who sees an attractive bond offering from an Irish Bank (call them Anglo). Josef sees that this bank have had 20 years in a row of profits and knows that Ireland is a model economy that is always being praised by Josef’s friends who work at the ECB – what could possibly go wrong? Josef transfers €100m from his account to Anglo’s account, and in return takes possession of some Anglo bonds. Did this transaction create an Intra-Eurosystem liability of €100m for the Bundesbank, which then paid interest on this every year to the Irish Central bank, via the ECB (offset slightly by payments in the reverse direction due to the coupon money flows paid by Anglo)

In other words, in the same way that the Bundesbank is now receiving interest payments as a result of inflows to Germany from Ireland, did the ICB receive interest payments as a result of the inflows to Ireland from Germany during the bubble? (Or are the Intra-Eurosystem liability interest payments only necessary when the money that is flowing was sourced via ELA?)

@ Colm

“The problem is his notion that “IBRC is a solvent institution”. No, it isn’t, its a fraudulent, corrupt, toxic bank facing investigation and will be found guilty re share price manipulation, B&B fund transfers to mislead creditors, shareholders, markets, director loans,,,,,,,,for starters.”

To be sure, it is the husk of an abominable enterprise. If, individuals and companies are successful in bringing their legal proceedings against Anglo, it’s auditors the regulatory authorities etc. What will be the likely exposure for these awards? BTW I believe the delay with Anglo, which the good judge has run out of patience on, has everything to do with allowing maximum passage of time to weaken the claims of those waiting in the wings for to see if criminal proceedings are instigated. I believe the investigation of Anglo has been a farce. It should have been done and dusted within 12 to 18 months maximum.

If this was in America most likely people would already have people behind bars. There is no excuse other than they don’t want to have to lock up some white collar criminals because it might set a precedent and other canaries might start singing their own songs which might have verses in them about politicians.

I heard our old friend Karl Dieter being interviewed this morning and he was saying that it was not clear if a breach of fiduciary trust would have any legal implications in Ireland and I said to myself, hear we go again we will be told that black is white! In Anglo’s case, it went much, much further than such a breach but you see the way the truth starts to get twisted to prepare us for the even bigger lie.

@ Eamonn Moran 4:02

Re ” There is one snag however. The government and central bank were willfully turning a blind eye and in fact were aiding and abetting the banks to conceal losses. ”

That’s not a stag, that’s more evidence to have the PN’s set to nil. I’m at a loss for words, don’t know whether to describe the above as masochism, or Stockholm syndrome, perhaps a mixture of both; its politically endemic as well. The arguments you have there don’t constitute an obligation on you to pay the bill; but rather to have the bill set to nil.

Now if you can provide evidence the “The government and central bank were willfully turning a blind eye”, we’ll use your evidence before some international court of settlements to prove the illegality of setting PN claims against future generations of Irish people; lets make it the biggest legal argument to have these illegal PN obligations fraudulently foisted against the Irish state, set aside.

Why do I believe you don’t want evidence but would rather brush it aside or use it as an argument against innocent taxpayers ? This deserves a new word: we’ll use as a new neologism describing the new phenomenon.

It probably has Bundestag variants, but you can use sadoMasochismoStocko to beat us with if you are a member of the troika or the ECB or Bundestag or FG/LB 🙂

Morgan Kelly’s view would be interesting, especially about the sale of Ireland’s infrastructure

@Eamonn Moran

Some people are never satisfied.


My joking compliment at the start of the thread aside, congrats to Karl, Brian and Stephen. Good work.

I was speaking to my mother-of-three suburban-school-teacher sister on the phone today. She was complaining about the government’s policy on promissory notes.

Job done, gents. “Did the state some service.” Thank you for the effort.


You would be doing Ireland a great service, & indeed ordinary citizens everywhere, suffering under the yoke of poor economics, if you (& colleagues) were to stop parroting the inflation ‘mantra’. Implying, as you do throughout this paper that money supply & inflation are always & everywhere correlated. There is ample empirical data to show they aren’t, especially in a situation of massive unemployment & under utilised economic capacity – where we are now in the Eurozone.

Please read Prof Bill Mitchell

@Karl Whelan

It’s only ‘fracking gas’ … it took me a while to figure out the non-issue of interest on those PNs from your stuff a while back …

… back to reality:

Suggest you might have that paper translated into German … should not be any prob in UCD … and then published in Der Spiegel in both English and German … Liberation in Hollande’s Paris would also probably take it ….

@ Colm

“The Bundestag is not in the mood for picking up any losses. Relief to us would signal opening the floodgates to Greece, Portugal.”

Well, national central banks are about to take a haircut on their Greek bonds, and/or give even lower rates on official loans, while the ECB is about to give back any potential future profit on its SMP holdings to Greece (via national governments) as well. So they’ve already “opened the floodgates” to Greece. Further, Schauble directly told the Portuguese FM that he was willing to loosen the terms of the Portuguese plan to help meet targets.

Ireland will get more help if required, the PN restructure is the most obvious route if we argue strongly enough for it.

@ Karl

Then why don’t you advocate some money creation for public purpose, rather than leave millions in Europe languishing on the dole & pretend there is ‘no alternative’ to a generation long recession/depression?

And don’t be coy. You know full well of the inflation ‘mantra’ of which I speak. It’s trotted out ad nauseam by the ecomics mainstream & politicians alike. If you know this to be false, you have a responsibility as an ‘expert’ offering public policy advice to speak up.

You know that Ireland’s export growth is foundering & GNP tanking. That the debt burden is massive & the likelyhood of even 2 to 3 % growth next year is pure fantasy. (I see Eurozone growth forecasts have been downgraded yet again…) You know (or should know) that there are massive downside risks in global energy prices, with no solutions on the horizon at the scale & timescale required.

Do you want to wait until we become the next Greece before challenging this madness?

@ ColmBrazel and Ahura
I would rather be at a stag than listening to you lot.

You have gone from legitimate critics to cranks in my eyes.

Somebody does something positive and then you complain its not positive enough. Then you suggest a strategy that you think would be positive enough, going down a legal road, but seem to have no intention of actually doing anything.

BTW your legal argument is that the Irish state should not have to shoulder the debts of IBRC because they mislead everyone including the markets about their solvency. I am saying that that case would surely be weakened by the evidence that the Irish government and ICB aided and abetted in this misleading. That’s not Masochism its a fact. But I would still wish you luck in your case. Now Sh!t or get off the pot.

It seems to be beyond the comprehension of some here that deferring the payments of promissory notes is not simply an extend and pretend option.
It is in fact much more significant than that.

I think that’s why some of you are being so critical.
Its also why some of your kin were anti treaty.
Lack of strategic imagination.


YOu are to be applauded for a fine piece of analytical work. However, you are attacked by those on the fringes for not advocating their pet solutions. In similar vein, I would now like to join them and issue an ultimatum. Unless you address the following issues to my satisfaction, I will squeam and squeam and stamp my foot-
*who really killed JFK?
*what is the 4th secret of Fatima?
*why can’t Everton win the Premiership
*what are next week’s lotto numbers

@ Mike

“And don’t be coy. You know full well of the inflation ‘mantra’ of which I speak.”

Typical IE blog trolling, always moving the goalposts. The original accusation was

“if you (& colleagues) were to stop parroting the inflation ‘mantra’.”

i.e. the key point being that I personally was parroting a mantra about inflation. Once I make it clear that I’m not, I get accused of being “coy”. Ugh.

This demonstrates another one of the great IE commenter attack lines. You get invited to something to speak about X and then get floods of comments saying “you’re a disgrace for failing to speak up about Y” where, over the years, Y could be anything from the ECB to the ESB (you know who.)

For the record, I probably write more about European monetary policy than any other economist in Ireland, via the briefing papers for the European Parliament’s ECON committee that I write each quarter and post on this website (usually greeted by complete indifference). I have consistently adopted a pro-QE, pro-looser-policy line over the past few years. You could have found this stuff on the front page here if you’d been bothered to type my name into Google. But you prefer to take uninformed potshots.

Anyway, that’s enough comments for now. I think I shouldn’t have bothered turning them on and am considering turning comments off on future posts, as I think the trolls have finally and irreparably taken over.

Comments are closed.