Recapitalisation of Irish Banks by ESM

The IMF Banking Union has quite a bit to say about how the ESM should go about the recapitalisation of banks, including in relation to legacy problems.  The main quotes are below (including the lengthy section C):

  • Meanwhile, to delink weak sovereigns from future residual banking sector risks, it will be important to undertake as soon as possible direct recapitalization of frail domestically systemic banks by the European Stability Mechanism (ESM). Failing, non-systemic banks should be wound down at least cost, and frail, domestically systemic banks should be resuscitated by shareholders, creditors, the sovereign, and the ESM.

  • ESM and crisis resolution. To be clear, the core purpose of ESM recapitalization of domestically systemic banks undergoing restructuring must be to remove the residual risk from the balance sheet of a sovereign whose finances are already strained. Unviable, non-systemic banks should be wound down at least cost; and systemic banks should be resuscitated by shareholders, creditors, the sovereign, and the ESM as the quintessential patient, deep-pocket investor. By delinking the sovereign from future unexpected losses on bank balance sheets, ESM direct recapitalization would remove future tail risks from the sovereign balance sheet; by ensuring that the banks have an owner of unquestioned financial strength, it would improve bank funding conditions. Thus, the ESM would attack the sovereign-bank link from both sides. In all cases, ESM involvement should be conditional upon a determination of systemic risk, which could be as basic as a finding that the bank is too large for the sovereign alone to wind up, given the state of public finances. A robust mechanism for the systemic risk determination will be critical (Box 4).

C. ESM direct recapitalization

44. Purpose. Mobilizing the ESM direct bank recapitalization tool in a forceful and timely manner is critical to developing a path out of the current crisis, and would complement other measures such as the ECB’s Outright Monetary Transactions. Recapitalization of frail, domestically- systemic banks in the euro area, including some migration to the ESM of existing public support to such banks, can help break the vicious circle between banks and sovereigns, reduce financial fragmentation, repair monetary transmission, prepare for banking union and, thus, help complete the economic and monetary union. To be sure, failing non-systemic banks should be resolved at least cost to national resolution funds and taxpayers. Equally, systemic banks benefiting from ESM support will need effective supervision and reform to be returned to full viability and private ownership, with state aid rules mandating formal restructuring plans. In some cases, the sovereign itself may need an adjustment program, providing an enabling environment for asset price recovery.

45. Approach. The mobilization of the ESM direct recapitalization tool should ensure frail, domestically systemic banks have adequate capital, access to funding at reasonable cost, and positive profitsin short, a viable business model. To this end, asset valuations are critical, as are the roles of shareholders, creditors, and the domestic sovereign in bearing costs.

  • In principle, there would be significant advantages to breaking the vicious bank-sovereign circle if all capital needed to ensure a systemic bank was adequately capitalized was ultimately provided by a central fiscal authority. This would especially be the case if the scenario were to play out in a small jurisdiction, and even more so if it also had to internalize spillovers to others (that might result, e.g., if external creditors did not share in losses, for fear of triggering wider problems). More generally, pooling risk would provide protection ex ante to all, as any country could in theory find itself in a similar position in the future.
  • In practice, although the Treaty establishing the ESM provides for the possibility of losses, such losses are not expected in its financial operations, including bank recapitalization. As a bank investor, the expectation is that the ESM must be careful to take balanced risk positions. It likely could not provide capital that a patient investor would not expect to recover over time. Thus, capital needed to bring a systemic bank out of insolvency (i.e., to bring it from negative to nonnegative equity) would in the first instance need to be provided by shareholders and creditors, and then by the national government, with any remaining shortfall covered by the ESM. Fortunately, there are unlikely to be large, insolvent banks currently in most economies.
  • A balanced approach would prudently internalize the benefits of ESM capital support by looking ahead over a time horizon sufficiently long to realize the benefits. As a patient, deep-pocket investor, the ESM should take a long-term perspective in its investment decisions, cognizant that gross upfront crisis outlays tend to dwarf ultimate costs net of recoveries/capital gains and, in many instances, generate positive financial returns.
  • Asset valuation. The implications for asset valuation, which determine the size of recapitalization needs as well as the investors’ up/downside risk, are twofold. First, asset values should be neither too high (which would imply mutualization through the back door)

could be given to allowing the ESM to set up and own AMCs. Possible roles for the ECB in supporting AMC operations could also be considered (although concerns regarding the prohibition on monetary financing may also be raised). ECB funding, if possible under its statute, would help smooth over time the warehousing and disposal of hard-to-value and hard-to-sell assets. An alternative would be for the ECB to support AMC operations indirectly by accepting ESM- guaranteed AMC bonds issued to banks in Eurosystem refinancing operations.




nor too low (in which case, the private sector could simply buy the assets, and there would be limited benefit to having an official investor). Second, because the ESM is a patient investor willing to give the banks the necessary time to restructure, assets should be priced at values that give due consideration of the positive effect of recapitalization on asset values. This includes not just the direct positive effect of recapitalization (including more favorable funding costs) and recovery, but also the removal of tail-risk events (see next bullet).

  • Risk sharing. As a patient, deep-pocket investor, the ESM provides assurance to creditors that, in the event of a negative surprise, potential future capital needs can be met. In other words, while the ESM would not take on expected losses, it would shoulder the risk of unexpected losses going forward. This approach is in line with efficient risk sharing, wherein the patient investor bears the residual risk. In this regard, it should be noted that, conditional upon the ESM standing ready to take material losses in a downside scenario, the ESM would be unlikely to actually incur those losses, because the investment would minimize the risk of the adverse scenario occurring.
  • No first loss guarantees. ESM investments should not benefit from loss protection provided by the sovereign. Such approaches would preserve sovereign-bank links, undermining the purpose of ESM direct recapitalization. But there should be safeguards for the ESM (e.g., built into the sales contract) against domestic policies that could directly harm the viability or profitability of the recipient banks (e.g., onerous taxes ex post or stiff resolution levies).
  • Exit strategy. There should be incentives for an early ESM exit and private investor entry. The timing would be built around the EU-approved restructuring plans. Mandatory sunset clauses should be avoided as they could affect negotiating power ahead of the deadline.
  • Adequate resources. Direct equity injections into banks could absorb significant amounts of ESM capital. It would be important to ensure that the ESM has adequate capital to not only allay any investor concerns about ESM credit quality, and thereby limit any rating implications, but also play its potential role of a common backstop for bank recapitalization.

46. Legacy assets. This term has been very controversial, reflecting concerns that creditor countries could be expected to put capital into unviable banks. This is not what is being suggested above. Rather, losses on impaired legacyassets should be recognized through upfront provisioning and proper (long-term/post-crisis) valuation. It is not recommended that all impaired assets be segregated from the bank prior to ESM direct recapitalization and placed into recovery vehicles ultimately backed by the national taxpayer; such an approach would greatly reduce the effectiveness of the tool in addressing bank-sovereign links. Rather, bank health should be restored with shareholders, including the sovereign, bearing the expected loss of past excesses by being subjected to an independent valuation exercise consistent with the shared commitment to restore full viability after the restructuring period.

47. Further support. To further support balance sheet clean up, certain classes of legacy assets could be transferred to asset run-off vehicles such as asset management companies (AMCs) under ESM ownership. Expected losses would remain with the sovereign, given the terms of the foregoing recapitalization. But to limit further contingent fiscal liabilities and harness efficiencies, consideration


Agreement on burden sharing and ESM direct recapitalization must also not be delayed, lest the costs of the crisis keep mounting.

44 replies on “Recapitalisation of Irish Banks by ESM”

The writers of this document have a vision of what the ESM should do in the banking area which is clearly not shared by Germany and other creditor countries. Suzanne Lynch of the IT has a very good piece in today’s IT.

The SDP is making the issue a major plank of its election campaign and opposes even the minimum now envisaged.

The question is also raised as to how productive an avenue the pursuit of the legacy assets issue, especially in an atmosphere such as that that accompanied the PNs debate, would be.

Given the trend of the discussions to date within the Euro Group, the expectations on the part of the authors of this report with regard to the ESM seem rather optimistic.

What is the realistic best outcome for the Irish exchequer? I think ESM probably will inject capital into the Irish banks, but on what terms? Realistically, I think it will be closer to the Wilbur Ross deal than the price the Irish government originally paid.

Still, it should provide a few billion to reduce the gross debt total as well as reducing tail risk for the Irish state.

It is clear from all this that the losses of the past, as accurately measured today projecting forward, belong with the Irish State. The ESM would accept future tail risk but on terms which would make sense to a “patient” investor. There are no hand outs here.

@Brian Woods II

The ESM would accept future tail risk but on terms which would make sense to a “patient” investor. There are no hand outs here.

So sauce for the tough old Irish gander is apparently too rich for the delicate ESM goose.

The Irish state have given a hand out of somewhere in the region of 35 billion Euro to the financial sector so far and the final expense of supporting the ne’r do wells in Anglo, ILP and, yes, AIB, is still unknown.

It is a surreal and unpleasant experience to hear people who were neck deep in the the moral and professional morass of the Irish banking crisis talking disparagingly of hand outs.

Do these capital owning class warriors feel even slightly guilty for what their industry has done to the Irish state?


Sort of off-topic.

“The ECB is re-examining Ireland’s “prom deal” after ECB member Jens Weidmann today said that he was “very concerned” the deal to liquidate IBRC and spin out the Anglo promissory notes might contravene EU law.”

I’m a bit surprised there hasn’t been a thread on here about the narrow point of whether the PN deal is monetary financing.

Jens says it is, and he makes the point the deal is ‘out there’ for everybody to see – and discuss.

Note, deal value is dependent on length of time CBI holds bonds. Longer = more valuye to Ireland => ‘monetary financing’

@ Grumpy

actually, its more complicated than that.

Article 123:

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

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

Now, is this a “overdraft or other type of credit facility”? No new debt has been created, or new credit extended. And the govt is not tapping the central bank for money.

Or is this, per no.2, the use of the “supply of central bank reserves” to buy a claim off the now defunct IBRC, at market rates, as it could do with any normal credit institution (even if state owned to start with)?

@ Shay

Is that me you are moralising at? Unfounded, ill informed and outrageous insinuations from imbeciles like you do not faze me but do somewhat seem a cowardly abuse of a situation where I declare who I am and you are anonymous.

I was simply observing that there will be no hand outs from EU sources despite what some think last June’s decision was flagging. Nothing disparaging about the comment, I would love hand outs.

@ grumpy

It obviously is monetary financing in that the ECB is facilitating a national government in getting out of a hole. Without the ECB the government would need to either borrow in the markets or get a Troika bail out.

But this is not what the ban on monetary financing was intended to stop. It was to stop governments having a money printing machine to enable them go on whatever binge they fancied, Mugabe style. That is clearly not what happened here.

@Eoin, Bw2

From the horse’s mouth:

“We took note of this issue in the Governing Council. Our deliberations aren’t public. Apart from that, the transaction is out there, it’s known, it’s very transparent. Everybody has his own judgment on this — I have mine.”

“The transaction as such is technically a bit complex but it has a fiscal nature as stated by the Irish government. That’s clear enough.”

Personally, I think its a big enough topic for a proper discussion.

@Brian Woods II

@ Shay

Is that me you are moralising at? Unfounded, ill informed and outrageous insinuations from imbeciles like you do not faze me but do somewhat seem a cowardly abuse of a situation where I declare who I am and you are anonymous.

It is a fair cop Mr Woods, my apologies.

What is economists take on the pooling of risk?

The US financial system engaged in the pooling of risk (CDOs galore) and their financial system blew up. Is Europe so different that the same thing couldn’t happen here if the risk was pooled and shared? That is the IMF-recommendation?

This time and this place it is different? Really?

& as always, nothing about ‘reward-sharing’ only about ‘risk-sharing’. Seems like the ‘heads I win, tails you lose’ bet is still the recommendation given by financial whiz kids….

We will get very little. In years to come many of the cheerleaders here for the deals strokes and other shenanigans will watch with blithe insouciance their neighbours kids emigrating and care less. Their kids will be fine of course. Of course……

@ Grumpy

The Taoiseach says “he has move on” and that as far as he is concerned it is over, done and dusted! However, it appears Mario and the ECB have yet to “move on”. I won’t be surprised if this unravels and the Irish government end up with a lot of egg on their faces. There is no way this is going to be fudged just so that the Irish can “move on” this has major ramifications for the independence of the ECB.

I hope the BUBA kicks over the traces on this one. There is no going back on this deal. If they try to unlock, we default, then it gets interesting.


I don’t think they need to ‘undo’ the deal to go all ‘hard money’ on it. It would appear there is only a minimum sales requirement and no maximum. It also seems that the CBI is obliged to sell bonds as quickly as it can provided this does not imperil financial stability. How this latter point is interpreted determines the extent to which the original PN unprinting schedule is extended and also the ‘gain’ to the Irish state from the ‘deal’.

This aspect of the deal secured by Ireland looks very vague to me and it seems to have gone straight over the heads of the MSM wallahs – and down the other side.

Unless the atmosphere at ECB last week was very frosty, it seems odd if there would be a consideration of this schedule now rather than the hawks waiting for a periodic inspection of holdings – unless they already detect ‘me too’ vibes from Spain and want to fire a shot across the bows.

The basic incongruity of last week’s statements from the CBI and the DoF is going to have to be addressed at some point. The CBI statement said the bonds will be sold “as soon as possible”, and made no reference to the 20 year disposal schedule. The DoF noted the 20 year disposal schedule and made no reference to “as soon as possible”.

The value of the deal is all in the extended disposal/unprinting schedule, and not in the fact that 40 years bonds are used. This fact appears to be completely lost on most journalists. However, as Karl Whelan points out the value of the deal would be almost totally negated if the bond disposal schedule was 10 years (similar to the original PN schedule). This issue can be simplified if you just view it as “When are the ECB getting their money back?”. The manner in which the funds are raised to pay the ECB (5 yr bond, 10 yr bond, 40 yr bond etc.) is an orthogonal issue.

I think there are two separate threads of activity which could cause the deal to be “reviewed” – i.e. changed. The first is internal ECB procedures. The second is as a result of legal action taken in the ECJ.

Assets held by NCBs for non-monetary purposes (i.e. not part of the SMP or the covered bonds programs) are subject to “ANFA” rules. However these rules are secret and are not made public. This is par for the course – the ECB is far less transparent than the Fed or BoE. However it is also possible that the CBI’s new assets are subject to even more ad hoc rulemaking. Looking at the ECB’s balance sheet this week I saw that the ELA went down by 40BN as expected, but the offsetting increase in assets appeared under “Other assets” and not the place where I had expected them to appear. This would suggest that the applicable rules could be even less formalized than with ANFA (e.g. make it up as you go along).

There are currently lawsuits in Germany questioning the legality of the OMT program. These may end up in the ECJ at some point. I would be surprised if someone actually went to the bother of bringing a lawsuit on the PN deal and pursued it all the way to the ECJ. The PN deal is Irish-specific, whereas the OMT is much more broadly applicable. Oddly, a ruling by the ECJ on the Irish deal would in my opinion likely be favourable to Ireland, based on the reasoning used to justify the legality of the ESM.

During the Dail debates this week it was stated that Honohan needed to appear before the Oireachtas Finance Committee. Let’s hope at least that the right questions get asked. I think he’s got some explaining to do.


This aspect of the deal secured by Ireland looks very vague to me and it seems to have gone straight over the heads of the MSM wallahs – and down the other side.

Indeed. My last post crossed, but made the same point.

Jens was not too happpy with the PN deal this morning on Bloomberg.

I’m not too happy with it either!

The BAU of the BBHF has narrowed down the source of ‘that leak’ to two: Irish and Deutsche. Further Intel may clarify; tbc.

@Brian Woods II

How about an ‘insider account’? Can’t seem to find one anywhere!

@ grumpy

“MSM” ? Sorry, what is the three letter acronym there?

@ Bryan G

Very fine post. Thanks.

“During the Dail debates this week it was stated that Honohan needed to appear before the Oireachtas Finance Committee. Let’s hope at least that the right questions get asked.”

I would like to ask with regard to the comment:

“He [Honohan] reminded his audience that Ireland was a triple-A market darling and its banking problems were initially dismissed as natural aftershocks from Wall Street turbulence. The Irish government decided to “guarantee everything, with no shilly-shallying around”.

“Did the ECB recommend that? I am sure they didn’t, though nobody knows,” said Mr Honohan,

How can he say “nobody knows” when a lot of people know? Why is he sure they didn’t?

@Gavin K

Second on this list:

(If you assumed it was the first I can understand your puzzlement)

Regarding this from P Honohan:

““Did the ECB recommend that? I am sure they didn’t, though nobody knows,” said Mr Honohan, who joined the Central Bank and ECB governing council a year after the guarantee.”

I have to say that it is surprising that a leading finance academic would have such a whopper of an apparent curiosity failure on this question. Has it not occurred to him to ask, or do you immediately go so native once appointed to officialdom that it would be a touch bad form to ask?

As the ESM bank recap negotiations, which are the directly relevant to this thread, will be coloured by the PN deal it might be worth noting that NWL appears to sufficiently non-MSM to be keeping up:

Key part:
“Minister for Finance, Michael Noonan: ….. The bonds will be placed in the Central Bank’s trading portfolio and sold as soon as possible, provided that conditions of financial stability permit. The disposal strategy will maintain full compliance with the Treaty prohibition on monetary financing.”

(Note the ref in the other answer to “right not obligation” seems to relate to arrange Float to Fixed swaps and not sale obligations)

Weidmann complains specifcally about references to fiscal policy being made by the Irish politicians in the context of the new deal – I assume he means all the talk about 1B euro reduction in austerity measures over the next two years. It is a bit embarassing. “Central bank does deal with government – government has 1B extra to spend!”. Pretty much explains why the ECB only “took note”.

Lots of TDs were falling over themselves to explain the benefits of the deal with anecdotes like how a packet of crisps only cost tuppence when they were a lad etc. Seems they don’t understand that things have changed a bit, as for that mythical packet of crisps to double in price now would take a mere 35 years. And perhaps even longer if that wage deflation needed “to regain competitiveness” kicks in.

However to explain the new hard-currency rules to soft-currency slackers the ECB have created this slightly creepy propaganda helpful informative cartoon that explains everything.

I see your point. The fixed schedule of the money burning in the PN has been replaced by a vaguer methodology of minimum sales and a “commitment” to unwind as soon as financial stability is restored. Of course we don’t know if that is in 6 months or never.
I wonder do the Hard Money men know that early unwind would probably increase instabiity now and thus preclude further unwinding.

@ All

With regard to the role of the Bundesbank or, rather, its current head, this EU Observer article is of interest.

It raises the question; is there any step to resolve the euro crisis that not alone EU politicians but his colleagues in the ECB that Weidmann can accept?

As the answer seems to be no, the role being adopted by Weidmann can ony be described as irrelevant except in a German domestic political context provided that, as occurred in the Irish case, he eventually acquiesces (not because he wishes to do so but because there would clearly be little understanding of his position in the German government – and probably eventually in wider public opinion – were he to fail to do so). In short, he is playing politics behind the facade of an implacable defence of the Bundesbank’s traditional stances, appropriate to it when it was an independnet central bank but not as part of the Euro System.

This Cantillon comment on the view from Frankfurt is par for the course.

On the legal questions, it is not the business of any legal instance other than the European Court of Justice to opine on the legality of the provisions of the treaties. This is what all countries of the EU have signed up. Unfortuntaely, apart from the Bundesbank, the German Constitutional Court also has an idiosyncratic view of its role and mistakenly, and almost alone among constitutional courts in Europe at this stage, in disputing the right of the ECJ to adjudicate in certain circumstances or, rather, takes the view that it has the final say.

An uneasy truce exists, the decisive characteristic being that, as in the case of the Bundesbank, there is much huffing and puffing but ultimately a modus vivendi is found.

@ grumpy

‘I have to say that it is surprising that a leading finance academic would have such a whopper of an apparent curiosity failure on this question. Has it not occurred to him to ask, or do you immediately go so native once appointed to officialdom that it would be a touch bad form to ask?’

Safe pair of hands.

To paraphrase Jim Kemmy, Jens strikes you as “mighty mouse in the BuBA and Mickey Mouse in the ECB”. He seems to carry much less weight than the more impressive Asmusssen. He seems also to be roundly ignored by his old mentor, Merkel. If the old BUBA had objected to this re-profiling, it would not have happened.
What the EZ needs is more of these deals under conditionality. A 100 year low coupon bond bond held by the ECB to finance bank recaps combined with the fiscal treaty would be a start.
What Grumpy’s hard money men want is none of this. If they get there way, there will not be an EZ.

A central bank gives a government 25bn in return for long bonds. That’s monetary financing in anybody’s language. But it is monetary financing in a monetary cause – the protection of the European banking system.

If the fiction that the CB are merely distribution agents for these bonds and will distribute them to the market as quickly as possible, if that fiction gets over the legal hurdles well so be it. I like a system that can bend its rules.

I think there is scope for cultural differences to cause some friction here. In Ireland “as soon as possible” will tend to be interpreted much like “this agreement is subject to no currently unforeseen budgetary deterioration”, ie “Er, yeah, right!”.

The Germans, Austrians, Finns etc are more likely to assume it means what it actually says.

What sanction/leverage does the ECB have if the CBI adheres to the minimum level of sales? Who will buy these securities?

“The US financial system engaged in the pooling of risk (CDOs galore) and their financial system blew up.”
That’s a different level of pooling. Did the FDIC blow up? What the IMF appear to me to be calling for is the ESM to use its deep pockets in support of bank resolution with an added bit of it being used as a stability mechanism to support TBTF banks through a panic – by being a bank bond buyer of last resort.

In light of political unwillingness to do something about TBTF, it seems a sensible suggestion. We could argue all day that TBTF shouldn’t be permitted to persist and we would be right, but until somebody does something about it locally or supra-nationally systemic banks need a support mechanism to ensure they can’t break the system.

Given the reliance of the German banking system on bond financing and their banker’s inability to invest without losing money, it is alarming that they cannot see that such a proposal is in their interest.

What I don’t see in the document (on an admittedly very brief read) is anything on moral hazard? How do we stop bank management gaming the system? Transnational policing, European courts unfazed by local interests, and tough sentences would seem to be one way?

“I have to say that it is surprising that a leading finance academic would have such a whopper of an apparent curiosity failure on this question. Has it not occurred to him to ask, or do you immediately go so native once appointed to officialdom that it would be a touch bad form to ask?”
Come now, at this stage you must know how it works?

Unless you can get someone to come on record, or point to specific documented proof, the answer will be “nobody knows”. The off the record answer, though is in the first part of the sentence:
“Did the ECB recommend that? I am sure they didn’t, though nobody knows,”

“I am sure they didn’t”. That is the answer the cat has got for his curiosity, but there’s no proof and no-one willing to go on record that there were discussions ongoing. The stain of the disastrous guarantee still leaves inky fingers. Inky fingers aren’t likely to be given nice clean things to do. Admission of involvement in or even knowledge of the guarantee is likely a career-ending move at this stage.

@ grumpy

I was thinking of testing the CBI and asking them to sell me a few. 3% over Euribor sounds fairly sweet.


I find that the TBTF, the FDIC and the Fed are difficult to discuss separately. If 150 banks are controlling too big a part of the European banking system then what can then be said about the US:
FDIC didn’t blow up but then again most of the deposits are now with the TBTF so the FDIC will never pay out on those.

I’m not sure who has got the bigger need: German banks to lend or banks in the periphery to borrow. At the moment it seems that German banks are surviving without lending to the banks in the periphery. There’ll be a time when surviving is not enough & they’ll have to start buying bank bonds from banks in the periphery but I don’t think that time is here yet.

I believe it more likely that they’ll expand their business in the periphery by opening up local offices. That might cost more in the short term but relying on the less than competently run banks in the periphery to lend prudently does seem to come with the risk of large losses. Even that might not happen as some banks that did do just that got hit by big losses in Ireland.

I suppose that insuring bank bonds through ESM or something similar might work. However, the cost of the insurance might make it so expensive to be impractical. Who’d pay the cost of the insurance? The borrowers in the periphery or the lending banks in the core?

TBTF has more than a passing similarity with a gordian knot. There might be another solution than cutting them down to size but at this time I don’t see it.

As an aside:
Would it not make sense now to split up AIB now? Inject some capital (that might have become available recently?) and sell that bank for the same amount -> A business bank in Ireland without much ties to the Irish property market but with ties to local Irish businesses? (Of course that would leave you with NAMA plus another bad bank…)

Date: 2018

Scene: The empty boardroom of the old Central Bank, Temple Bar, Dublin. The retiring Governor Patrick Honohan stands alone, musing over the view.

A phone, left on the floor, rings. Honohan considers leaving it, then idly picks it up.

Draghi: A, Snr Honohan, you have not yet moved?

Honohan: No, not yet. The captain has to be the last to leave the… Um perhaps that’s not the best way of putting it. We’re all moved and ready to start up in our new headquarters along the Liffey. Just saying goodbye to the old girl. What can I do for you Snr Draghi?

Draghi: I am phoning to say that as Ireland is now financially very secure….

Honohan: …I wouldn’t say that exactly…

Draghi: …As Ireland is now financially secure, it is time to accelerate the bond disposal programme. [Pause]. Are you still there, Snr Honohan.

Honohan: Still here, still here. Ah, Snr Draghi. I don’t quite know how to put this: we’ve lost them. [Pause]. You know how it is, one person says they put them in a tea chest, then you’re worried following the van in case you get lost on the way. Then you take everything out and an intern starts crying because her ‘Trichet for President 2003’ mug is chipped, and yes, well, though I was firmly assured they were put in they just couldn’t be found. So of course I came back and looked all over the place really, behind the empty shelves, under the Occupy Dame Street placards and whatnot. And what can you do? They’re lost.

Draghi: You’re lost tens of billions of sovereign bonds?

Honohan: It doesn’t sound great when you put it like that: but the British lost and Empire and never found a new role. You lost Ethiopia didn’t you, I mean that’s pretty careless.

Draghi: You will find ze bonds, Herr Honohan.

Honohan: The other fella, Trichet, used to sound like that at times of stress.

Draghi: Like vhat?

Honohan: Like an extra from ‘Allo, ‘Allo. Speaking of the other fella. When I was looking for those pesky bonds, I did find a box marked, Secret Messages from JC Trichet and the ECB 2008 – 2011.

Draghi: Vhat is ziss to do with ze bands? I haff no time for ziss, I have to get on with ruling the world, I mean chairing an important meeting.

Honohan: Oh, don’t let me stop you: it’s nothing really, except it turns out we do have a set of letters, emails, irate phone calls and what not of JC Trichet saying a lot of things, that well, might be illegal, certainly inflammatory and would undoubtedly put our excellent work back by good few years. You know, the things I said would never be known.

Draghi: I’m sure my predecessor behaved impeccably. Impeccably!

Honohan: Oh no. We both know he behaved like a complete rotter and right outside his remit. Well, under our new transparency rules, I suppose I shall have to release the tapes.

Draghi: Ah. Perhaps that is not in the best interests of the Euro-System as a whole.

Honohan: No?

Draghi: Those Bonds Honohan. You will keep looking for them?

Honohan: Absolutely Snr. You know how things turn up when everyone settles in. Eventually.

Draghi: I see. Well, we will talk again.

Honohan: Looking forward to it, regards to Mrs Draghi. Bye now.

Draghi: Wait, Governor, you haven’t sent me your new number.


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