Goodbye to the Promissory Note

My take on the transaction is in this Irish Times op-ed article.

73 replies on “Goodbye to the Promissory Note”

Sorry Philip, nothing I can disagree with there. It is ridiculous that you have to expose the nonsense of the counterfactual but it has a lot of support not just amongst Shinners and the Technical Group of Looney Tunes but in this very blog and amongst some of your peers who should know better.

The DOF briefing suggests that with no policy change the effect of this win is to reduce the deficit in 2015 from 2.9% to 2.4%. Personally, I would be amazed at achieving 2.9% and to that extent would have no difficulty if the 0.5% “win” was given back to the taxpayer. But, without doing any sums, my hunch is that we will be still around the 5% to 6% level and there should then be no thought of “spending” this win.

The other danger is overhyping the win, especially by Labour, as it makes it all the more difficult to tackle the significant challenges you allude to in your article.

Hmmm if it was such a win win deal mr draghi certainly gave it a cool reception. This is monetary finance and should be called exactly that rather than parrot the party line. The term of the monetary finance has been extended to 15 years, fair play to the government for securing it, but if see this deal replicated in other countries it will be very worrying.

Incidentally the NTMA acknowledged yesterday the 15 year holding period could be speeded up. Also, they failed to deny the ECB can review the terms of central banks new liability once a year.

“Under the deal, this has been exchanged for a set of sovereign bonds with the same face value. Although the associated payment schedule to the Central Bank is prolonged relative to the promissory notes, the market tradability of the bonds is a valuable attribute, so that the instrument exchange is a “win-win” with gains to the Central Bank and the Government.”

Is it win win? Isn’t there a counter balance that this lump officially coming on the states books adds to financing costs for the state generally…will it add 0.2, 0.3% to debt issued going forward? I don’t know, the market will decide I guess….it would be foolish to assume the market will be blind to the
reclassification of this debt and assuming this debt as absolutely ours now is not assured of a win win outcome in the way described above.

Hmmm if it was such a win win deal mr draghi certainly gave it a cool reception. This is monetary finance and should be called exactly that rather than parrot the party line.

You are correct and it appears to get worse. The ECB has not yet accepted the deal.

I think we could be looking at and outright ECB veto in three weeks time, after the bank has taken the time it said it needed to examine things.

To quote the great John Giles, if you go out and play for a draw you might just get it…. but you certainly won’t win and risk of losing is about equal in both cases.

Of course we are in a better place than this time last week but we set the bar very low very early in the process. For eamon Gilmore to suggest it was a great day for Ireland is quite frankly, disgusting. To stick with the football analogy we were 5-0 down….we pulled it back to 5-2…but we still lost and lost badly and very little credit should be given to anyone involved in that sort of a defeat…and what’s worse is the game is actually a result now, it’s over…while the prom notes were the prom notes we always had a chance.

“An important outcome is that the Irish fiscal position has substantially improved thanks to lower debt servicing costs, a reduction in the scale of market funding required and the pushing out of the maturity dates on these bonds to the far-distant future.”

” … improved …” This cannot be correct. Except in a political PR-spin* context. What are folk assuming here? We are, or we are not going to repay the exact same sum (or some virtual equivalent) or what? Just a Yes, or a No – if that is possible. Is a 2012 Euro worth; more; same or less, than a 2022 Euro? – (if the EZ is still standing), than a 2032 Euro?; than a 2042 Euro? Real interest rates are on which side of the zero-bound? And someone had better explain the difference between reality (perception) and facts – especially the contrast between ‘value’ and ‘prices’.

“At the same time, this remarkable (if limited) deal should not be under valued. It is a major achievement for the Government and the policy officials who designed and delivered it.”

“…remarkable …”? ” …a major achievement ..” ? This is completely unbelievable. These bozoes would make Paul Daniels look like a novice amateur. They have raised Orwell Speak to the status of an Olympic, performance-enhanced sport. They have replaced truth with deception, and morality with paternalistic coercion. There CANNOT be winners on both sides of this – well, there can be – if you are being economical, elastical and fantastical. “Trash the truth!” “Print the legend!” Mind you, if someone asserted that voters only want the legend – it might prove impossible to rebut.

How long can any state continue to spend more than it collects in taxation? Indefinitely? That seems to be the consensus opinion. So, Irish taxpayers will NEVER be free of debt re-payments. What sort of hinky politics is this? Your existing debt may be re-payable if your income does not decline – or your interest rate stays fixed: preferably both. But if incomes decline and rates increase – then what? Another bout of PR-shite! Voters will not give a fiddler’s about international ‘face-saving’ or ‘market confidence’ – they will observe their looted wallets, their reduced pensions, their hollowed-out health and education services – and will vote according to whomever promises them more ‘goodies’ – courtesy of Eternal Borrowing! If a state cannot ‘borrow’; is this a definition of a ‘failed state’?

If I understand some of the comments on another thread correctly, then some aspects of EU/EZ law trumps our national law and within these aspects, Irish legislators are simply a bunch of political geldings. That’s a recipe for an eventual revolution against both the EU and the EZ.

Keep an eye on the global, available nett-exports of liquid hydrocarbon fuels [LHF]. These are a good coal-mine canary proxy for the health and well-being of the global financial services [FIRE] sectors. There has been no statistically significant increase in global nett exports of LHF since 2007! Have economists missed this?

* Sean Barrett TD. has described this behaviour as – and this is a direct quote, – “The soft-shoe shuffle in shit”.

@OMF….a company called Monetary Financing Inc. offshore organization above the law.
Don’t like c ya going out on a limb,regards.

@ my senior

You ask yes or no. Answer No. Seamus Coffey has shown (another thread) that the NPV of the savings is €4bn. I don’t know – is that a the price of a few metros? Not bad for a midnight session in the Dail.

xtract from “The Fitzpatrick Tapes”(Tom Lyons and Brian Carey)
Chapter 7 “Massacre” page 123

” Our exposure is not to the biulding it’s to the money that comes from the leasing of it. If the value of the property goes down it doesn’t matter we still get our loan repaid” Fitzpatrick was nothing if not consistent in this ,one of his core philosophies.

If you examine Fitzpatrick’s core philosophy,if the property was was worth zero, it didn’t matter because he wasn’t lending against the properties,he was lending against the feudal leases.
Ruinous Irish commercial property lease law i.e.upward-only rent reviews tied to long leases,say 25/35 years with no break clauses,were only available in Ireland.No other eurozone country,or any other country in the world allowed this ruinous lease law.

This is the real Anglo Irish Bank story.

+ 1

However, the next debate involving “Europe” – i.e. that it is viewed as extraneous to anything that might involve national responsibility – will undoubtedly be the “retroactivity” issue in relation to the bailing out of the other banks cf. report by Ann Cahill of the Irish Examiner.

On the broader front in relation the future conduct of economic policy, the outcome of the European Council has been rather overshadowed by the saga of the PNs. Ireland, under the terms of the package agreed, will now seemingly remain a net beneficiary until 2020.

There have also clearly been changes on the revenue side with Merkel seemingly agreeing to undo some of the less attractive features of earliar agreements but against the background of an overall reduction. As the eurosceptic think-tank Open Europe put it, a European Council where everybody won. A first for quite some time. It also concedes the role of Merkel as power-broker.

@Philip Lane

A well reasoned piece based on the underlying assumption that the Promissory Notes should be honoured.

I strongly disagree with this ‘assumption’.

There exists not an angstrom of honour or justice in such a capitulation to the rapacious forces of the financial elite at the expense of the ordinary Irish Citizenry. Democracy has been turned on its head. It merely represents a short term amelioration of the terms of our servitude to the Financial System. In acepting such a ‘deal’ we acknowledge our servitude.

So farewell then
Irish banking crisis promissory notes
“Valued at par for capital purposes”
Yes, that was your catchphrase
“Paying over a longer period of time, as it a mortgage situation”
That was how you were serenaded
by Brian Cowen
Now you have been reincarnated
Into paying over an even longer period of time.
So in fact, it’s not farewell then at all.

@ my senior

Brian, I am sure my postings are as embarrassing to you as yours are to me, so to spare both our blushes I have decided to come out and declare that I am the actuary model ex AIB

Mr Bumble,Oliver Twist….
“If the law supposes that … the law is a [sic] ass—a idiot. If that’s the eye of the law, the law is a bachelor; and the worst I wish the law is that his eye may be opened by experience—by experience.”

Eh what about article 123……

“the prohibition of monetary financing (Article 123 of the Treaty on the Functioning of the European Union)”

@ My Namesake: Not in the slightest. The only blush I can muster is a Hot Flush! We know who we are – the others can figure it out – I hope! Keep posting! And thanks for the update. I assert that I now can enjoy full faith and confidence in myself! 😎

Most folk have a quite naive, narrow and unstructured (lineal) understanding of financial matters. Discounting means getting a reduction on the actual bill to hand. Not something some distance into their futuristic future. Something to do with the cash and coin in one’s pocket, and all!

@ JG

Thanks for the link. It was the best I could come up with. It is not that inappropriate e.g. from the link (Precise Encyclopedia).

“Once thought to be orally transmitted history that had finally been written down, sagas are now usually regarded as reconstructions of the past, imaginative in varying degrees and created according to aesthetic principles. Important ideals in sagas are heroism and loyalty; revenge often plays a part. Action is preferred to reflection, and description of the inner motives and point of view of protagonists is minimized.”

@ my senior

Apologies, as an actuary I take broad understanding of words like “discount” for granted. I recommend you look at Seamus Coffey’s blog. Without discount he estimates the benefits of the New Deal to be 7bn and most of that in the next few years. You should be able to follow it.

Even the FT has seen the light! The EU actually works!

This bit

“Mr Draghi’s success in talking down the euro while dismissing calls for a managed exchange rate policy added to the sense of competent stewardship.”

can, however, be contrasted with this in its leader the previous day with regard to the “saga”.

“That, added to this week’s deal, may throw open Ireland’s door to bond markets. When that happens, Dublin should – proudly – ask for ECB bond market intervention to be activated. With words alone, Mr Draghi has kindled tentative market confidence in the euro. With a little more help, Ireland can present him with a worthy candidate for putting words into action.”

Mr. Draghi is, apparently, in the business of talking down the value of a currency in which he has only recently kindled tentative market confidence.

With advice like this, how can we possibly go wrong!

@OMF et al.

“The ECB has not yet accepted the deal.”

Noonan’s comments in his Pat Kenny interview clarified a number of things, and all of Draghi’s seeming evasiveness can now be explained.

The ECB are maintaining the legal fiction that this is solely an action by the Irish authorities. As such there is not, and will never be, an “agreement” on this matter. The reason why things were “unclear” was that as all the arrangements are made by Irish authorities, and the whole thing is pretty complex anyway, then you’d better ask them any questions you may have.

As time I thought the statement that Draghi’s “this is not the last word on the matter” indicated that the unexpected liquidation had pre-empted final agreement on some details, but I no longer think that. Disposal of the bonds is a matter for the CBI, not DoF/NAMA. The bonds will be held in the trading book of the CBI, and are apparently subject to “ANFA” rules (Agreement on Net Financial Assets not Relating to Monetary Policy). The ECB governing council can review CBI holdings (e.g. possibly impose caps etc.) so “not the last word” means that there is an ongoing mechanism that gives the ECB governing council oversight and control. Also I would bet that the bonds will never be sold to AIB.

Noonan used the phrase “totally illegal” regarding the PNs, and said the new arrangement is more legal/less illegal that the old one. There’s less monetary financing going on this week than there was last week.

So the PN issue is finally and definitively settled. While the details will be forgotten over time, an enduring legacy will be the speed and determination with which the “monetary financing” prohibition was abandoned to protect certain interests, ensuring that the losses were covered by the Irish taxpayer. Those who opposed this approach (Stark, Weber, Weidmann etc.) did so from a purely nationalistic standpoint, elevating the German taxpayer into a privileged position, creating false narratives as needed. A sad state of affairs indeed.

@Bryan G
“So the PN issue is finally and definitively settled. While the details will be forgotten over time, an enduring legacy will be the speed and determination with which the “monetary financing” prohibition was abandoned to protect certain interests, ensuring that the losses were covered by the Irish taxpayer. ”

Absolutely. ‘Nie Wieder’, should now be adopted as the Irish motto.

But there must be a little more to the goings on at the ECB last Wednesday than is being said.

Neither the Irish govt nor Honohan would have gone back to the ECB with a proposal, two weeks after getting a kick in the rear end for teh previous proposal, unless they had a pretty good nod that the new proposal would succeed. Such a nod, or at least no objection, could only have come from Draghi.
So Dragh was able to get the proposal agreed at administrative level at the ECB. The glitch happened on Wednesday when, imho, the Dragi probably failed to get a comfortable majority to carry the proposal. Remember Draghi was quite comfortable with a 14 to 1 majority to carry OMT. This time he clearly did not have 14 to 1. There is a distinct possibility that there were at least two and possibly more dissenters.

Ireland for once took the initiative and went ahead, with the first move, the IBRC liquidation. Given Noonan’s ‘totally illegal’ comment above, it is clear that the Irish govt had the initiation of legal action against the ECB in its tool kit.
To avoid a split of the ECB council, possibly along debtor/ creditors lines, Draghi came up with the formula ‘noted’ for the Thursday press conference and stuck to it.

PS; What would the bonds issued by NTMA late this week with <3% interest, fetch if issued onto the market at rates prevailing say in 2004/2005.


Some people seems very concerned with the question of whether this new PN / Bond deal is monetary financing. Well the initial one definitely was, but it suited the more powerful ECB council members at the time.

Personally, I could not care less whether this deal is monetary financing or not. Europe and the EZ has far more serious issues today than the sceptre of the ogre of monetary financing.
There are over 20 million unemployed in the EZ, over 50% Spanish youth and almost 60% Greek youth. The EZ is still being held together by Draghi, with the largest EZ member fighting him on every policy, every inch of the way. Whatever solidarity there was in the EU/EZ disappeared with the treatment meted out to majority of the Greek people.
So let those nations whose God is a hard currency, go back to their hard currency and leave the rest of Europe in peace for this century, at least.

@Bryan G, All

ELA can be issued by a central bank unless there is a veto 2/3 rds majority of governing council.

New deal does not involve ELA.

ELA was effectively re-issued every 2 weeks.

The questions are, whether the “agreement” is simply that the governing council did not choose to veto it (that was my assumption when Draghi said they had “noted” the Irish actions), and what if any and when, any opportunity for such a veto could arise.

I think this is something contributors could usefully focus on – along with the barriers to other EZ states printing their bank recaps along the lines Ireland has.

A very curious article in a number of respects.

Could this really be an article about the macro economic state of the Irish state and banking system without any numbers?

“Irish fiscal position has substantially improved” Really? How so and by how much.

In a week where…
– the Government has spouted incredible claims of 20bn of savings over 10 years
– commentators on RTE have cited the effects of inflation and deflation since the 70s and 80s, when we were NOT apart of the Euro
…one would of expected some realistic clarification of the actual savings in the paper of record? Given the confusion in the post here yesterday on “Discounting”, I could be a lot more cynical about this.

“The rules of this facility are that losses have to be made good by the national government,”

And the rules concerning the Stability and Growth Pact, “No Bailout”, “No Sovereign Bond Buying”, “No Default”, No Long Term Refinancing of Banks, Independence of States from the ECB (as well as vice versa)? What about those rules, Philip? Its funny, but rules can be made up as we go along when it suit Brussels, Frankfurt or Germany, but when it comes to Ireland, the Irish establishment is adamant that we must stick by the rules. This statement is only rivaled in its naivity by the claims of “sequencing” of reforms, including banking union, following the Fiscal Compact Treaty.

“non-payment of the promissory notes would simply have increased the effective level of Irish sovereign debt by the same amount.”
Increased it with dodgy, exotic non-market based debt that we could have just defaulted on straight away. How does the defacto seniority of the PNs compare with sovereign bonds and ESFF/IMF funding?

“Given this sequence, any attempt by the Government to unilaterally reduce the face value of the debt would have been interpreted as a type of sovereign default.”

Maybe a type of sovereign default, but not a sovereign default as defined by ISDA or the financial markets. This would have ruffled the feathers of the bureaucratic and politcal caste and maybe some people would have been taken outside their “comfort zone”, but a better deal would have been reached. In the very worst case scenario, we would be back to square one and have had to pay all the debt, which is what we are doing now anyway.

“any decision to renege on the promissory notes could only have been in the context of a wider decision to seek sovereign debt restructuring, which would be a radical break from the current economic strategy.”

Well, Holy Groupthink Batman, a radical break with current economic strategy, no less? Well that would have been a huge relief. Instead we have a continuation of the same orthodoxy that has plunged the Eurozone into a qugmire over the last 3 years.

The end result can be read between the lines with “The wider debate on sovereign debt sustainability will doubtless continue to run” and the reference to “household debt restructuring”. The fact remains that debt restructuring is highly likely at some stage. With the highly dodgy PNs amounting to 20% of GDP this was a golden opportunity to force a restructuring with a minimum amount of pain. That opportunity has been squandered by the ineptitude, poor leadership and woeful negotiation skills of the DoF, Noonan and Honohan. Now, if and when a restructuring does come, it will be a hell of a lot more painful.

Not to worry, at that stage most of the Irish establishment will have retired and will be enjoying their big fat Govt. guaranteed DB pensions.

Oh, and I forgot the risible:
“It is a major achievement for the Government and the policy officials who designed and delivered it.”

If this was a major achievement, how is it that it was the second, or perhaps third best deal that we asked for – a deal that didn’t even require an ECB vote? The ECB gets all its money back and we used a facility (NAMA bonds) that was already approved.

So what exactly was the major achievement that taxed the considerable intellects of Enda, Mick and the Paddy-that-doesn’t-like-to-know?

The other issue that would have caused a lot of discussion at the ECB this week is the fall of the yen/stg and dollar. One wonders how the ECB council members are lining up on that one.
So how would the euro be reduced in value vis a vis yen/dollar/stg.
I am not clear on how the technicalities of such an operation would work but I assume with all the conviction of the innocent that it would not involve any printing of euros?

The discussion/argument breaks into two camps,those suffering Stockholm Syndrome who have been “captured” by the current corrupt craven financial system prevailing or have skin in the game,and those not.
From the first groups “opinion” it’s a fantastic deal simply fabulous kudos all round…wow!
Those who feel NO moral or financial responsibility for a rouge rabid bank,whose senior executives are before the courts and possibly facing serious time.That shower of begrudgeers,shinners,illiterates,immature amadans won’t be “happy” with any deal….put me strongly in the second camp.

@Joseph Ryan

Given Noonan’s ‘totally illegal’ comment above, it is clear that the Irish govt had the initiation of legal action against the ECB in its tool kit.

I don’t think that’s plausible at all, as it would amount to saying I’m litigating against you because you failed to prevent me acting illegally (not an unknown concept in the USA, however). I should clarify that Noonan is way too experienced a politician to say directly “it was illegal” – he said that “the legal people would say that it is totally contrary/illegal etc” and he would point out that new arrangement is better in those terms than before. Sort of like “you might say that, but I couldn’t possibly comment”.

Given that Noonan expected the deal to be done by “tea-time” I would say that he knew in advance Wiedmann was on board, but that there was a last minute hitch, possibly from one of the smaller players that wasn’t directly involved in the main discussions. The inclusion of the BOI-held bond appears to have been a late addition, and might have appeared a bit weird, as it involved transferring a privately-held bond back to the CB – the opposite direction from what is desired.


The questions are, whether the “agreement” is simply that the governing council did not choose to veto it (that was my assumption when Draghi said they had “noted” the Irish actions), and what if any and when, any opportunity for such a veto could arise.

That’s certainly my understanding of the “noted” action. Also the fortnightly reapproval of the ELA has been replaced with periodic reviews of the CBI asset holdings – which in practice would mean the schedule for their sale.

I think this is something contributors could usefully focus on – along with the barriers to other EZ states printing their bank recaps along the lines Ireland has.

Although the mechanisms differ, the Greece, Spain and Ireland recaps all share common characteristics. The gap in the balance sheet was filled with an (ESM/gov) bond that was conjured up out of thin air, not from existing money raised on the capital markets. This asset/money creation is to be undone over a long period of time, with minimal payments in the first 10 years (via various holidays, maturity extensions etc), with most of the heavy lifting kicking in after that. Responsibility for the repayments rests with the national governments – there is no debt mutualization. That’s basically the deal on offer.

Brehon society has odd parallels to the modern world. In that society there was a really important place for bards. Now most people think of bards as poets but they were in fact modern day spin doctors.
All this talk is just bardic dribble for the glorification of clan Noonan agus ar uile

Fox News are carrying a story tonight on the Trade union protests which mentions that the ECB agreed to a deal on Thursday which will see a reduction of 27b of the national debt. The spinning is relentless.

Ann Cahill’s story in the Examiner seems to be the only accurate piece of reporting around…
“However, also Berlin has a long memory and continues to blame Ireland for many of the banking problems.

“They remember when the bank guarantee was introduced without anybody being consulted,” he said.

They also believe the poor supervision of banks in Ireland led to the downfall of some German banks which the German taxpayer then had to bail out.

EU leaders may now feel Ireland has got enough with the deal on the promissory notes and view the liquidating of IBRC as making the promissory notes worthless and bouncing the ECB into the deal.

However, Mr Kenny said he did not see this as diminishing the chances.

EU officials have been anxious to point out that the fund — to which Ireland will contribute €11bn — is limited and they do not want it to be dispersed bailing out banks that have already been rescued.”

To be fair to MN and Enda it took some guts to bounce Draghi into the deal..but it looks like we scuppered any kind of a deal on the other banks.
Btw, have we factored in that 11 b we have to hand over to the ESM when estimating savings?

The ECB are maintaining the legal fiction that this is solely an action by the Irish authorities. As such there is not, and will never be, an “agreement” on this matter.

And will this satisfy the Bundesbank? I tend to think not. This is monetary financing, and the ECBs complicity will only enrage the Bundesbank further.

Not that I disagree with it. I think the Irish state should have acted unilaterally a long time ago. They could have done it in a way that involved us paying no debt, but I suppose that is asking a bit much.

What shocks me, really shocks me, is the complete and total change in attitude on the part of the Irish Government(and not a few commentators). Everyone suddenly seems to have come to complete agreement to do something which only one week ago was utterly unthinkable and a sure route to chaos.

I now find that after five years of conservative plodding and of deriding, condemning, and refusing to even discuss even mildly radical options, Ireland has undergone an overnight conversion to financial Trotskyism. The debtors have seized control of the means of monetisation. Is this some kind of collective middle/late-age crisis; a throwback to rebellious youth when faced with extreme fiscal stress? Or is something else going on here.

In conclusion, I no longer understand establishment thinking in this country, and I don’t think anyone else does either.

I think there are a lot of people around these parts that need to ponder on the meaning of “that ship has sailed”.

The discussion needs to move forward along the Nie Wieder/Never Again lines.

I actually think there should be litigation against the ECB, not for the purpose of “getting our money back”, but from the point of view of circumscribing and legally defining the scope of the ECBs actions in the future, prior to any Treaty change (which may be impractical in the short to medium term). Draghi is pragmatic, and a very smooth operator in pursuit of his goals (if you have any doubts read this ). Trichet appeared borderline unhinged and megalomaniac. No system can depend on the personality characteristics of any single individual for effective operation. The fundamental problem is that the ECB entered fiscal policy territory and assumed de facto control over taxpayer funds. Any such decisions should have been in the domain of the EU Council/ECOFIN instead. It is basically a “no taxation without representation” argument. This issue is even more important with the proposed common banking resolution scheme.

Another area is reform of the Euro architecture itself. The need for this has been pointed out by some Irish economists. Fair enough. But where are detailed proposals? What should be changed and how? Where are the white papers? Where are the speakers at the relevant conferences to hammer home the message and evangelize the solution? Where is the collective action to push the agenda on a broad front? (From memory the only “collective action” effort by a significant group of Irish economists was a very poorly thought-out plea for mortgage debt relief). The is no such reticence from Herr Sinn and his like-minded supporters in pursuit of their agenda.

Another area is reform of the Oireachtas. Deputies were reduced to chatting about Twitter comments last week but the problems are much more fundamental than that, with the dominance of, not even the cabinet, but the EMC. Other parliaments just don’t work like that. As a tiny example, the DoF don’t bother to put their own press conferences online. The assumption is that anyone of standing (i.e. the official media) would be there in person, and that the information would be conveyed in a suitable form to the masses. It’s an excellent model, for the 1950s.

On the financial side, the effort to have SMP profits on Irish bonds funnelled back to Ireland should be pursued. I think the chances of any debt mutualization on the AIB/EBS recap are somewhere between extremely minute and zero.

Sweden and Finland both had crises in the early 1990s, but made real and radical changes to their own societies to ensure their Never Again. Any assessments of the value of protest marches/opposition etc. needs to be made on the basis of how they frame, explain and promote the real and radical changes needed for Irish society. General whinging won’t do.


And will this satisfy the Bundesbank? I tend to think not. This is monetary financing, and the ECBs complicity will only enrage the Bundesbank further.

It won’t satisfy the Bundesbank, but the whole point of the Euro was that satisfying the Bundesbank becomes less important. They have 1 vote of 17. The reality is that the only workable solution to the current problems (monetary financing, with conditions) is technically illegal, so that a huge amount of effort goes into a bizarre effort to work around this problem.

@Bryan G/OMF
With all the illegality about and that includes our own ministers acceptance of the illegality of the promissory notes (above) isn’t it time to draw a line in the sand?

Very good discussion above.

Stephen Donnelly’s take in the Independent.

‘We have been well and truly burned’

“Next week, the deal will be voted through the Dail by government TDs.

“Their leaders have just reduced the cost of the promissory notes by €4bn.

“That is without doubt a success. They have also just guaranteed the following: generations of Irish people will pay €31bn so that those who made loans to Anglo and Irish Nationwide during the bubble get their money back.

“That is without doubt an abject failure.”

And Colm McCarthy

“A coup for the Government – but it still has unfinished business when it comes to debt”

“The principal amount due has not been reduced – this was not legally possible under the rules of the eurosystem and there would have been little point in seeking a principal reduction which could not legally have been granted. To acknowledge this reality is not to concede the legitimacy of the debt burdens which have been imposed on Irish taxpayers.”

“There have been serious leaks from the last two meetings of the ECB governing council. It would appear that on both occasions opponents of the Irish Government’s plans ran to the news agencies with revelations designed to de-rail the process. One result was the all-night parliamentary session and the midnight repatriation of the President from an official visit to Italy to sign the legislation into law.

“Proper central bank boards do not treat elected parliaments like this. The plan executed last week has been discussed in detail with ECB officials for months and the leaks clearly did not come from them. They must have come from one of the central bank governors who join the executives for governing council meetings.

“The Irish Government should make its displeasure known – it is important for the credibility of the ECB that these leaks be investigated.”

It is very clear from reading the McCarthy article that the ECB would not have agreed to tearing up the PN at this junctiure just as they have not taken a hit on their Greek bonds. Therefore, what Ross, Donnelly and Mattie want, would have required a unilateral default.
That would have had interesting consequences to say the least.

David McWilliams said on Saturday:

Swapping the debt from a promissory note to a long dated government bond will mean that, in the short-term, the State won’t have to find so much money to pay for the sins of Anglo. My back of the envelope calculation suggests that the savings will be substantial. Had Ireland kept paying the promissory note over the next 10 years, we would have had to come up with €30bn in a decade. That’s a huge figure, more than 20pc of GNP. Clearly, this was not on. This new arrangement means Ireland will have to come up with about €5.8bn. Paying over a longer period is good news for all of us relative to paying the lot over 10 years.

David goes on to say that we can’t afford it and it’s not good news compared with paying nothing at all.

It’s nice to get free gifts and yesterday a fellow Corkman who runs the Healey Mac’s Irish pub in Ipoh – – the centre of a former tin mining region – – gave me a pint of Guinness on the house — to celebrate the Chinese New Year.

This week, Irish and French cows got better subsidies than their Latvian counterparts and while the IFA was ‘disappointed’ of course, it did acknowledge that “Taoiseach Enda Kenny worked hard to build alliances with the French President and others that minimised planned cuts to the CAP Budget.” Why would we query the gift horse or Microsoft when it books end-user sales in Athens, Rome or Madrid, in Dublin, depriving them of corporate tax revenues?

It would be nice too if a tooth fairy paid back all the €64bn in bank support.

Many of the people who are so outraged now that there isn’t a full refund are likely the same irrational people, with the exception of David McWilliams, who were among those who three times in a row supported the policies of Fianna Fáil and its acolytes.

Private sector credit grew 28.5% in 2005 and by early 2006, with the exception of AIB Bank, all Irish lenders were providing 100% mortgages and many also provided interest-only loans.

More than 75% of Bank of Ireland investment customers had availed of the bank’s ten-year interest-only mortgage according to a BoI manager.

Patrick Honohan, central Bank governor, said last night:

It is not that one bank or another failed in Ireland. It was that the whole system went into an ocean of indebtedness well beyond its ability to survive. The two worst-run banks did not just lose all of their capital. They lost almost half of the value of their balance sheets, and their losses have scarred the Irish economy in a way from which it will not fully recover for a long time.

We can fatuously claim to have saved the Eurozone banking system but before that, a significant number allowed the Irish economy to be wrecked for a second time in a generation.

Apart from Prof Honohan’s own area, there has been little significant change since the crash.

Worrying about grandchildren at this point is a luxury when the jobless level is officially 325,000 compared with 75,000 in 2000.

This week’s development on debt should allow a focus on the jobs crisis but Oireachtas members have been clueless so far when it comes to enterprise policy.

So why should a Finnish teacher pay higher taxes to support Ireland?
They have been more prudent than the Irish and have more in the kitty:
At the end of 2007, Finland, a member of the Eurozone, had surplus public funds of €130bn; Ireland had a net debt of €20bn. Both countries had a GDP of €180bn

In 2009, the rate for a primary teacher after 15 years was €50k in Finland and €68k in Ireland according to the OECD. It was €61k at upper secondary level and €68k in Ireland.

In Finland in 2009, a Finnish GP’s pay was 1.8 times the average wage and 3.5 times in Ireland; a salaried specialist earned 2.6 times the average wage in Finland and 4.5 times in Ireland.

Confused about the deal? Not sure whether to crack out the champagne or start cracking skulls? Are we debt pixies or decent Europeans? Has the ECB caved or cleverly stuck its claws further down our trousers?

Answer the following and see how you score.

The most important thing for me in all this is:

(a) Ireland gets back to some sort of normality.
(b) The international banking system is put back in its box.
(c) I can make a decent profit trading.
(d) To expose the fallacy of permagrowth in a wealth extracting system

I would describe myself as mainly agreeing with:

(a) Karl Whelan
(b) Michael Taft
(c) Donal Donovan
(d) L Randal Wray

In 2053 I think Ireland will be:

(a) Much the same as it is now.
(b) Much the same, but more unequal with robots marginalising workers: absent revolution.
(c) Much the same but with giant glass skyscrapers where I now live.
(d) A post apocalyptic wasteland if we go on like this.

I think the savings from the deal should be used for:

(a) Partial debt reduction and partially for the most vulnerable.
(b) A targeted jobs stimulus.
(c) Are you mad? Have you seen the size of the deficit?
(d) If you think there are savings you really don’t understand how modern banking works.

The sight of Michael Noonan makes me:

(a) Oddly reassured.
(b) Decidedly uneasy.
(c) Curiously affectionate.
(d) Simply enraged.

I am currently:

(a) Employed, but my pay has been frozen for 5 years.
(b) Unemployed.
(c) Snorting coke off the backs of… sorry, I mean employed in the services sector generating wealth.
(d) Studying tram systems.

I would describe myself as:

(a) A normal sort of socially minded person: extremes are equally bad.
(b) Politically committed to a more equal society.
(c) A Very Serious Person.
(d) Heterodox.


Mostly (a)s.

It’s a good day! You are uneasy at the reactions of Gurdgiev & co., and no way do you like shouldering the debt of Anglo and Fingers, but this is a step in the right direction and you look forward to the next five years with a little less dread

Mostly (b)s

Not so good! Yes, immediate prospects are better, but any signs of a local rebellion have been lightly squashed. The Irish Economy as a whole may be better off, but this puts citizens in certain debt for a generation with inevitable social losses and does nothing for equality.

Mostly (c)s

It’s a score! Anyone who expected anything better is delusional and/or a dangerous rabble-rouser. You just hope they don’t squander this: it has to be used to close the deficit.

Mosty (d)s

You don’t understand! Why are people concerned about this when much bigger issues of the monetary system, the FIRE economy and the depletion of real wealth are the big issues. Why can people not see what is obvious?

@ Gavin Kostick

One way of looking at the situation would be to ask the question whether Ireland has been treated in a discriminatory way relative to other countries, leaving aside the issue as to whether or not the ECB acted illegally with regard to its insistence that senior bondholders not be burnt, a question to which only the ECJ can give an answer as, indeed, is the case with regard to all the legal aspects but bearing in mind that the ECJ acts in conjunction with national courts.

Central banks in the EA do the same thing as far as the ECB is concerned being collectively – by treaty definition – responsible for the single currency.

I cannot see that the country has been tretaed in a discriminatory fashion. What may make it seem like that is that it has had the mother of all banking busts. Governments act to bail out their banks not to save the banks but to save their economies. Under the treaty articles dealing with EMU, this responsibility stays with national governments. Nobody forced us to sign up to these treaties. Doing so, unlike in many countrie, was endorsed by popular vote. If this was a mistake, we must look to ourselves for the explanation, not blame others.

Alphaville has drilled down to this level of analysis through pointing out that the ECB does not have a LOLR function. This stays with the NCBs and, until a fully functioning banking union is in place, this will remain the case.

The other major factor, it seems to me, is that in a system of fiat currencies, sticking absolutely to (i) sound economic policies and (ii) the letter of the law is the foundation on which everything is built. Other parties to a single currency are not collectively going to abandon these principles at the demand of the country with the worst behaviour.

We know that the banks were lent and borrowed money irresponsibly. But they were not the ones that spent it, distorting the economy in a manner which, as the governor of the CB has pointed out, will take a long time to correct and, one could add, longer if previous errors are repeated.

@ Gavin Kostick

Herewith the Alphaville link.

No matter how difficult it seems for some Irish commentators to accept, the ECB was doing its job. Luckily for the future of the euro, the credibility and standing of the bank is not dependent on the view taken of its actions by some; to be expected in the case of the country coping with the biggest banking crash ever but hardly from the central bank of the country gaining most.

President Franklin D Roosevelt used to tell a story in response to the ungrateful businessmen who termed the New Deal a form of communism: A man in a silk hat fell off a pier and was drowning in the ocean. A bystander jumped off the pier and saved him, but the drowning man’s silk hat floated away. The bystander was thanked profusely by the man for saving his life. But three years later, the same man attacked the bystander for not saving the silk hat.

The Chicago Tribune ran a headline in 1936 that said “Moscow Orders Reds in U.S. to Back Roosevelt,” reporting on a speech made by Earl Browder, the head of the Communist Party of America, which was reprinted in Russia.

Ironically, William Browder, a grandson of Earl who is a hedge fund manager, is a persona non grata in Putin’s Russia.

What’s going on? I fly back in to the country for the big game and find Ireland up to its neck in PR guff? Ireland is saved? The coalition are heroes? The ECB are our new BF’s?

I wonder how much this liquidation is really going to cost? I wonder what will get swept under the carpet and ‘lost’ in the confusion? Many a slip twixt cup and lip…

Come on Ireland.

p.s. I have now lost count of the number of actuaries I have known over the years called Brian Woods. There must be a mould out there.

What is your Wooden rating?

I find it fascinating that my senior is at the opposite end of this debate. I thought I would rate other contributors on their BW rating, me at 1 and my senior at 10, of course.

It is not just a matter of disagreeing with me, you have to talk a lotta bull to get a high rating. Sensible rejectionists will be disappointed with a low rating. A rating may of course be appealed in case I have misunderstood you.

So, in order of appearance:

Aisling 1; JMK 4; VB 6; JC 5(?); DOCM 3;DOD 8;FG 9; JG 8; BG 3; JR 6; Grumpy 3; bazza 8; Eureka 9; Fiat 5; GK 4; Tull 2; MH 1; PR Guy 5(?)

Average 5.2 Standard deviation 2.6


Another thing omitted from the article is that we had a third course of action, which was to stand pat: continue servicing the promissory notes while pushing for their writedown/printing-away. The official-sector creditors weren’t burned in the last Greek restructuring, but it was a close-run thing. (And don’t forget the fan-dance about NCBs voluntarily returning profits to Greece!) In the next Greek restructuring they’re surely set to be roasted. So assume that, say, 12 to 24 months from now the next “Greek deal” is made and the precedent of the ECB taking losses is set. At that point we might be kicking ourselves for having given up the promissory notes. Now obviously there would have been downsides to hanging on to the promissory notes for now, for example the payment in March. But it wouldn’t have been nearly as risky, or as confrontational, as unilaterally repudiating them now. Of course that’s probably why, for example, Jens Weidmann was (unofficially) supporting the deal we made instead: in exchange for €4bn or whatever in NPV he gets to put the Irish ELA issue to bed.

Its funny, but rules can be made up as we go along when it suit Brussels, Frankfurt or Germany, but when it comes to Ireland, the Irish establishment is adamant that we must stick by the rules.

We had a great to-do about our consent to Lisbon, then the lot of us finally voted for it: let us honour it now. Let others be thieves and liars, it gives us no right to be the same. Not that in fact the Irish establishment is all that determined to stick by the rules, or otherwise we would never have had our Big ELA Adventure in the first place.

Speaking of which, though, the latest on the Italian Central Bank and MPS seems pretty interesting… I’ve also just heard Colm McCarthy on This Week with Mariane Finucane, saying that if someone was leaking from Fed meetings then the culprit would be found and prosecuted. Not necessarily, it seems.


Of course, the government has its own, political reasons to put the issue to bed now rather than holding out for another month (let alone another year). (Again, fwiw, I’m willing to believe that the deal we made was the best available.)

@grumpy, @Bryan G

The questions are, whether the “agreement” is simply that the governing council did not choose to veto it (that was my assumption when Draghi said they had “noted” the Irish actions), and what if any and when, any opportunity for such a veto could arise.

Yes, why would the board members do anything which would limit their freedom to take up the legality/approval issue again in future when the ICB looking at selling the bonds, or for any other reason? Other reasons for “noting” rather than approving: to cover the arses of the Bank, or individual board members, legally as much as possible; to cover arses politically as much as possible; to minimise the precedent created.

@Bryan G

Although the mechanisms differ, the Greece, Spain and Ireland recaps all share common characteristics. The gap in the balance sheet was filled with an (ESM/gov) bond that was conjured up out of thin air, not from existing money raised on the capital markets. This asset/money creation is to be undone over a long period of time, with minimal payments in the first 10 years (via various holidays, maturity extensions etc), with most of the heavy lifting kicking in after that. Responsibility for the repayments rests with the national governments – there is no debt mutualization. That’s basically the deal on offer.

This leads on to some interesting points. First, what are the principles which are supposed to be guiding European policymakers right now as they try to handle the financial crisis? Well, one is the July ministerial declaration that the link between sovereigns and banks must be broken, which made special reference to the Irish situation. Another is Article 123 TFEU, which forbids monetary financing of EU sovereign debt. Result? This week’s Irish prom. note deal, which (in and of itself, at least) copperfastens the existing arrangement of sovereigns bailing out their banks with finance raised from the Eurosystem. Bienvenue en Europe!

Second, there’s a bit of misdirection going on here. However good or bad it is, this is not the deal promised or half-promised in the ministerial statement, the deal that the Irish government was confident of securing by Octobernow. Any deal that breaks the link between the solvency of the Irish sovereign and its banks has to involve (what are effectively) grants, not (what are effectively) loans. It also has to apply retroactively, to the debts the Irish state has already taken on to rescue the banks, not to future AIBoI bailouts, as most of the damage has already been done in the case of Ireland (he said in hope). There are more or less only two forms such a deal could take – a PN writedown, or grants to the Irish state from other EU member states (through whatever three- or four-letter sock puppets they choose to employ). PN writedowns are now impossible – and were apparently not achievable anyway, and the Irish government apparently never asked for them at all, and in any case the ECB is not really the body you would expect to see delivering on a commitment made by the member states – so that just leaves fiscal transfers. Does the deal just agreed involve fiscal transfers from EU governments? No. So this is not the deal that the government promised us in July, QED.

(And if one has any remaining doubt about this, you can just go back to last October. Merkel said “There will not be any retroactive direct recapitalisation” from the ESM: this was understood by everyone as ruling out the kind of deal that the Irish government had promised us and was asking from Europe, to the extent that the government felt it had to respond by organising a press conference in which Merkel appeared to suggest that her statement might not have really applied to Ireland at all. And here’s Kenny spelling out the distinction last November.)

So this is not the deal promised in July. Yesterday on the radio Noonan appeared to say that the government is still pursuing such a deal, but it has not delivered one yet, if it will at all. But not everyone seems to be noticing the distinction now, and presumably the government is pretty happy to have it that way.

@ anonym

It’s not clear from the June 29 communiqué that legacy debt would be included.

If that was the intention, then many countries could apply for inclusion e.g. Germany, France, Netherlands and peripheral countries. The ESM would soon be exhausted.

We affirm that it is imperative to break the vicious circle between banks and sovereigns….The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.


I don’t think it’s certain that the currently-existing ESM is large enough for even a purely prospective deal that does enough to minimally qualify as “break[ing] the vicious circle between banks and sovereigns”. That would also help to explain why member states are now trying to partly row back on any commitment to even fully-prospective centralised bank bailouts. As far as I can see it was widely accepted at the time that even a purely prospective deal might require a much expanded ESM, so it doesn’t seem right to single out a retrospective deal as not possibly being what was intended because it would bust the existing ESM.

But in any case it doesn’t refute the point I was trying to make. The Irish government sought to achieve, and said it would achieve (by October, at one point), a retrospective mutualisation of Irish bank-bailout costs, and it publicly interpreted the ministerial statement as promising one. However it hasn’t achieved one (at least yet), and this week’s deal isn’t one.

> doesn’t refute the point I was trying to make

Sorry: it wouldn’t refute the second point I was trying to make.

@Brian Woods II

You will be pleased to learn that both your good self and DOCM receive a rating of 10 on the Lorenzo Bini-Smaghi scale which is based on the extent to which you spin that the fu*k ups and debts of the financial system should be borne by the ordinary Citizenry.

As Deal Lorenzo would put it – “Well done Sirs”.


You have me all wrong. I don’t think this should be borne by the ordinary citizenry at all. It should be borne by the people who are currently hoarding the 30bn. These are the farmers and other property and landowners who had obscene sums thrown at them by Seanie and Fingers’ developers. There should be a retrospective 90% tax on net land/property gains made in the period 2000-2007. Unconstitutional? Have a referendum – that is one ref will get a 99% Yes.

I cannot for one moment understand why anybody expects foreigners to fund a most massive, unjust and obscene internal transfer of wealth overseen by ourselves alone.

@BW|| gosh it was all going so well…so your proposal to fund the PN’s is a 90% retroactive tax on already taxed capital get out much ?

@ JG

I would allow set off of already paid CGT. There would need to be many other exemption like if anyone blew it all on wine and women, probably not realistic to ask them to pay. For most it is sitting in bank deposits having been transferred of course from Anglo to AIB.

@BW|| do you have a ‘link’ to that 30 Billion deposit transfer of deposits to AIB from Anglo ?
This is all I could find….your proposal is complete total rubbish.

“AIB won the tender for the Anglo deposits, believed to be worth just over €9bn, while Irish Life and Permanent was the winning bidder for approximately €4bn of deposits at Irish Nationwide.”

@BW|| I ran a DCF using your input on here and it came to zero,you appear fond of ‘scoring’ other posters comments utilizing bullshit as a metric you win with a perfect score…well done.

@ JG

I sense that you are morally repulsed at the idea of retroactive taxes on the windfall super wealthy but have no difficulty with defaulting on our obligations to our EZ and other foreign partners. Everyone to their own moral compass.

But just for avoidance of doubt my arguments are not at all morally based, god forbid. I just don’t think it is smart to say, in the words of Prof Lucey, fcuk to these folk whilst we need them to send us over a billion a month just to get by.

Some day when we discover that all those Irish rainbows really do have a crock of gold at their end I’m all for embracing Luceyism.

@BW||,yo Brian I’m a tad upset at my score..8 ..was aiming for a 10.
Yep as someone who cashed out at top mkt. by selling to idiots financed by euro banks any clawback taxation proposals would be morally repugnant to me.
Why you dragging Brian,into it?
We fundamentally differ I don’t think they are your obligations so defaulting on them is moot.
FYI- r proposal is garbage complete nonsense…tax entrepreneurs who correctly called the market and sold out….you who constancy belittle the “shinners” and loony left…..

@BW||,phew enjoyed the exchange….hands off my after tax capital,its in US dollars…curious why did they not lock the rate?
Hedging 30Bil is not an option in Irish bonds,interesting times.


The problem with the June 2012 EU Council conclusions is that there was never any real agreement about the scope or principles of the direct recapitalization mechanism. There was just a form of words put down on paper at 4.00 am that allowed everyone to go home. Monti threatened to extend the meeting till Sunday night if he didn’t get something. The form of words chosen masked the disagreement, rather than capturing an actual agreement. Within days the interpretations of the words in the conclusions differed hugely between the AAA countries and the rest.

It says there *could* be a *possibility* to recapitalize banks directly. I *could* have a *possibility* of winning the lottery tomorrow. All I would have to do is to buy a ticket and to win.

The Irish government totally oversold this “agreement” at the time.

@Bryan G

there was never any real agreement about the scope or principles of the direct recapitalization mechanism […] The Irish government totally oversold this “agreement” at the time.

Oh, absolutely. All I said is that 1) the EU has set out headline principles of “break the vicious circle between banks and sovereigns” and “no monetary financing” and this latest deal again continues doing pretty much the opposite on both scores and 2) this is not the deal, involving retrospective direct bank recaps, which the Irish government promised for (originally) October and has yet to deliver (if it will at all).

@ All

Of course, I am not serious about a retro-active tax, all sorts of complications.

But I thought it would counter some of the “moral” arguments emanating from the rejectionist side, most notably Gene Kerrigan in the Sindo who talks of repaying gamblers debts.

Foreign senior bondholders got their own money back (plus a few bps in interest) as did domestic seniors and depositors.

The 30bn hole has gone largely in obscene windfalls to a small minority of our own citizens as I described above.

The Regulator was insisting right to the very last that Anglo was absolutely sound. There is an indisputable moral, if not legal, case that our own Regulator was guilty of gross misrepresentation.

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