John Corrigan on OMT

In an interview broadcast today as part of RTE’s This Week show, NTMA chief executive John Corrigan made some comments on the OMT programme.

Colm Ó Mongáin: If we had applied for extra conditionality we would have qualified then for this European Central Bank bond-buying programme so was there any sense that applying for a credit line would offset the risk that were there trouble further down the line and a spike in European bond yields we would be ok because the European Central Bank would be able to buy Irish bonds?

John Corrigan:  Well, the take on that is … is unclear in the sense that the OMT, which is the jargon for it, which is the programme operated by the central bank, which hasn’t been triggered yet, the precise terms and conditions for accessing that haven’t been laid down, number one. And number two, that programme is designed to address systemic issues which might arise in the markets. So, if, even still we were caught up in systemic issues as part of a wider problem to the extent that OMT was triggered we would still be in line to benefit from that.

Most of the ‘what if’ scenarios raised this week following the decision not to pursue a precautionary credit line focussed on domestic concerns about the Irish economy rather than systemic ones for the euro area. 

The question seemed a perfect opportunity for John Corrigan to say that Ireland is already eligible to be considered for OMT without the necessity for the additional conditionality that a precautionary credit line might bring.  He is right that “the precise terms and conditions haven’t been laid down” but we do have this very brief outline of OMT which provides some guidance on which countries are eligible to be considered for OMT.


Outright Monetary Transactions will be considered for future cases of EFSF/ESM macroeconomic adjustment programmes or precautionary programmes as specified above. They may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access.

It is pretty obvious that Ireland is covered by the second sentence.  As part of the existent EU/IMF programme there has already been strict conditionality imposed on Irish policy for 2014.  If there is an asymmetric shock that hits Ireland which can be alleviated by central bank bond purchases then the ECB’s Governing Council can decide to activate OMT for Ireland. This week’s decision had no impact on that.

As long as Ireland is “regaining bond market access” (which is admittedly subjective) then Ireland is eligible to be considered for OMT and a credit line is not a necessity for it.  It is not clear to me why John Corrigan did not say as much today.

47 replies on “John Corrigan on OMT”

“They may also be considered for Member States currently under a macroeconomic adjustment programme when…..”

Seamus I think I, and maybe JC, read “may” followed by “be considered” as slightly less definitive than you do?

That said, I have thought for a long time it highly unlikely that goalposts will not be moved as and if necessary to protect holders of Irish gilts.


I think the wooly wording is designed to put Ireland (and other economic dilettantes) in the same position as it is now – you can be considered for the programme if…….. you give up your ol’ corporation tax scam/secure state assets against the loan/hand over the first-born in every family/invent a time-machine.

It’s why they didn’t secure one now and why JC doesn’t see semantics as a Plan B.

There is only one Plan B now… but it needs a pair of balls and a printing press!

Germany is not a good negotiating partner right now, whether on a precautionary programme or OMT. That’s what it came down to. Corrigan was not going to say anything that would be grist for Bild.

@ grumpy

I agree it is not definitive but it is there. One take on the use of “will” and “may” is that the announcement of OMT means that it will explicitly form part of the discussions of any future programmes. Naturally OMT was not part of the current programmes and may be added if it is appropriate. That is a very benign take though.

Given how little actual detail there is on OMT any conclusion is possible. To paraphrase a line used in The Usual Suspects: “The greatest trick OMT ever pulled was convincing the world it existed.”

Draghi said he would do “whatever it takes” but he hasn’t done it yet so presumably OMT will be refitted when the time comes.

@SC-the link to RTE interview is excellent,thanks.Commentary regarding the independent rating agency Moody’s was intriguing on many levels.
The minister did an interview with CNBC Friday,was asked about OMT but deftly sidestepped answering it.His commentary contrasts somewhat with JC in the RTE piece regarding rates.
OMT q/a is at 1.40.

The OMT issue is clear.

Draghi does not wish to use it but the facility exists even though conditions that would apply are vague.

It’s likely that it would only be activated after some weeks of stability.

It’s also unlikely that Ireland would be alone in a sell-off.

@MH there was a conference recently in Berlin on OMT- summary and vid below.
The issues is simple does irl qualify or not and what has a LC got to do with it?
The decision by the NTMA to sit ‘out’ off the market is questionable to say the last-so Irl is ‘out’ off the market then by choice…

Benoît Cœuré’s recent speech was linked on here previously by DOCM i think, worth a ..
Speeches/presentations etc here.

I gave a short paper at the Dublin economics workshop Galway 2012 “Turning water into wine: official bond buying – beware financial miracles” .. the title I think is clear … (the paper is gone from the website however it seems). The focus instead should simply be on good policy making and implementation of policy. Success in turn will result in lower bond yields, ceteris paribus.

@COH-good paper enjoyed it.The debate ongoing via the WSJ.
original interview.
“Peter Praet has put the cat among the pigeons. In an interview with The Wall Street Journal, the European Central Bank’s economics chief said the ECB could expand its balance sheet via the purchase of assets.
The economic merits of that are already being debated. But another important question is what form ECB asset purchases could take—one the ECB will find harder to answer than other central banks.
The U.S. Federal Reserve, Bank of Japan 8301.TO +2.88% and Bank of England have all purchased large amounts of government bonds in their efforts to loosen monetary policy. That’s not so easy for the ECB, which has to cope with 17 member states and a government bond market fractured by the sovereign debt crisis.
Even the question of which bonds to buy is a fraught one. The ECB could only buy German bunds, forcing risk-averse investors taking cover in the euro zone’s liquid safe-haven asset to buy higher-risk instruments. But such apparent favoritism would be political dynamite.
Yet buying bonds of all euro-zone nations is equally problematic: it would reduce the pressure on governments for structural reforms that the ECB has keenly promoted. German policy makers and their allies would likely revolt: The German Constitutional Court is already examining the ECB’s as-yet unused Outright Monetary Transactions bond-purchase program, which comes with heavy policy conditionality.”

@Fiatluxjnr-how bank holdings off sov. debt will be treated under the stress tests is where the rubber hits the road.
Yves/Junker’s BFF from this morning…
“Another question that we are currently discussing internally rotates to how the commitment is to evaluate in government bonds. During the respect of the current legal situation dictates, to prove on the balance sheet analysis, the capital adequacy of government bonds with zero percent and to distinguish between banking and trading book is no decision has been made as the loading stress on government bonds will appear in the stress test. But solely by the market risk and the time axis of the stress test with regard to the maturities of the bonds the assets will be subjected to a load.”

did he really have to crush the irish belief in santa like really!
bit harsh ‘mistakes off the past’ hmm..

“Now it is that from this proposal also provided as early 2015 a labor-efficient settlement mechanism. Because we need to urgently complete a banking union. With two basic elements: uniform supervision and uniform processing. As the Fund with funds from the banks to be fed, it will cost time, however, arises in particular the question of the transition solutions. This in turn raises questions of distribution. Basically national mistakes of the past should not be financed from a common fund. However, if the will does not exist to bridge the credibility of the new architecture to strengthen the monetary union is questioned.”

@John Gallagher:
re: Yves Mersh on his problem of how to evaluate government bonds!

Maybe he is conflicted or confused or both!
Lets get real.

How can the ECB, in the light of its virtually open-ended promise to buy EZ government bonds, via OMT or ‘do whatever it takes’, penalise banks for having these bonds on their balance sheets?
Or alternatively, how can the ECB stand over a government bond ‘rating’ exercise, that would see German bonds in the hands of all EZ banks valued at 100% and Italian bonds valued at 90%, thereby causing an outflow from Italian bonds?
The whole ‘debate’ is quite laughable.
The ECB, imho has no choice except to value all govt EZ bonds on bank books at par. To do otherwise, would have the effect of the ECB itself causing a run on peripheral bonds, and would be seen as a causus belli or causae repudii (cause of divorce) by the countries affected by the downgrades.

As our dear departed leader might say, the mush gets mushier.

“The focus instead should simply be on good policy making and implementation of policy”.

In reality, cash for trash and the markets will buy anything if they know it has CB backing. Who cares about fundamentals when there is momentum in the market ?

@Joseph Ryan-the entire credibility off the already somewhat dubious stress tests rests on that very question:)
That interview on Prime Time is worth watching in relation to this issue.
There have been a few discussions on here and links,your pal Jens is strongly advocating for a rather robust criteria.
Fitch Base 3 study-not sure if its behind paywall or registration required your end, but was widely covered by the usual suspects,link to short paper next to the video.

Reuters in case link does not work or you need register/paywall.


“The focus instead should simply be on good policy making and implementation of policy”

Doesn’t that mean, keep cutting? Have Profs. Krugman and O’Rourke not persuaded you of the damage this “good policy” is doing?

Galicia in North West Spain once an outpost of Celtic culture still thinks of itself as distinct from Spain as a whole. See in this article the difficulties that are arising as Spain tries to realign its troublesome banks. Galicianisation raises its head. Add problems in Catalonia to this and Spain looks decidedly unhealthy.

What JC needs is a large glass of double Irish to steady the nerves for the journey ahead.

@ Ciaran O’Hagan

+ 1

@ All


Interesting report from Goldman Sachs.(H/t Eurointelligence)


“Spanish commitment to reforms has impressed, and we begin to see some of the fruits of that effort in terms of more efficient adjustment … A year ago, our base case embodied Spain entering an ESM programme, in order to (1) obtain access to OMT financing from the ECB and (2) improve the credibility of its reform programme. On this, we have simply been proved wrong. Spain eschewed an ESM programme, having benefited from the market calm induced by Mr. Draghi’s famous “whatever it takes” intervention. Nevertheless, the Spanish authorities demonstrated impressive commitment to further reform, even absent the conditionality that a programme would have implied.

While Spanish economic activity over 2012Q2 – 2013Q2 evolved quite consistent with our forecasts, the adjustment and reforms implemented in Spain appear to have had more immediate supply-side benefits. This offers succour not only to the Spanish government but also to the European authorities as a whole given the need for some evidence that macroeconomic adjustment can deliver improved economic performance.”

And the “lessons for the future”.

“Looking ahead, we emphasise two results of our analysis, which need to be kept in mind as we look forward.

 Our existing forecast machinery may tend to understate downside risks to price stability. While we remain of the view that deflationary pressures will abate as German inflation rises, we need to be aware of the need for close monitoring.

 Supply-side reform can have a more rapid impact on the pace and effectiveness of economic adjustment and restructuring than we have previously assumed. As a result, through time we may see more heterogeneous outcomes across the periphery, as the pursuit of reform and restructuring remains patchy across countries and thus their impact on macro outcomes will vary.”

In sum; the risks for 2014 are Italy, the risk of deflation and France continuing under Hollande to do nothing other than wait for the French economy to right itself unaided or, rather, despite the actions taken by her government to date.

@ Sarah Carey

Anyone who suggested that cutting spending is the essence of every good public policy should be considered a fool.

Of course after a bubble bursts in a small economy, there isn’t much choice unless some kind people deliver gifts to keep the status quo intact. Even a country with significant natural resources and its own currency such as Iceland, hasn’t had much independence either.

Good policy? In recent years, the ESRI, OECD and the IMF, have all highlighted how job activation programmes now covering 80,000 people are poorly conceived, executed and administered.

The focus in all cases has been to ensure that the long term unemployed benefit, not cost.

The same could be said about all the well meant enterprise schemes without sunset clauses.


The DIW analysis is fine and on Monday survey results of 3,000 firms showed that most did not plan to increase investment in 2014.

The proposed solutions are not very convincing.

Low taxes in Ireland for indigenous firms have not promoted success.

@ MH

At least the DIW is addressing the right problem. The fact that German firms are not investing is hardly surprising. In the current German mindset, the market for goods produced in Germany must always be primarily abroad. The doubtful quality of the financial assets being accumulated in return seems never to be considered.

Merkel’s idea for reform “contracts” is also about to resurface.

The thought that Germany also needs reform seems to make little headway. Still! Never look a gift horse in the mouth! The issue of reform is one of degree. I doubt if Germany is topping up the salaries of its senior health care staff with the proceeds of hospital tuck shops and parking charges.

We all know that the Telegraph promotes it’s book
Still, worth noting. We also get a mention.

@DOCM ta for the GS link good read.You may enjoy this rather decent if qualified mea culpa too….
“The case of the euro is a bit different: I was very pessimistic about the strategy of austerity and internal devaluation, which I thought would have a terrible cost — and I was completely right about that. I also guessed that this cost would prove politically unsustainable, leading to a crisis for the euro itself; so far, at least, I have been wrong. My economic model worked fine, my implicit political model didn’t; OK, so it goes.”

holy cow,

pk acknowledges, that there might be, after all, the possibility of life outside his islm sandbox.

But I see still a long way before him to fully repent and kiss the ring of jens : – )

The Holy inquisition shall help him with our various monetary instruments.

German companies are not investing to increase capacity because they do not see a market for the added production. Germany is in good company because a majority of relatively well off developed countries have companies sitting on surplus cash waiting for opportunities to arise at home or abroad. The heads of central banks comment on the new reality a couple of times a year for the past three years or so. I interpreted it as being an excuse for the lack of stimulus evident for the last five years. They can, they should, but they do not. Why not?

Something that seems to be missing in my eyes is that too many people believe Merkel can shake her broom and get German individuals and companies to spend, spend, spend. Germany has low unemployment but from the perspective of the average German it is far from being a rich country. I have a niece and her husband who are Orthopaedic Surgeons practicing (private independent) near Frankfurt and they make much less than my engineer son of a similar age.
In the Anglo-Saxon universe surgeons make at least 50% more than engineers.
What can be done, raise the minimum wage, raise wages in manufacturing, raise wages in service, create a housing bubble a la Ireland.
How do you see Germany increasing consumption in a way that solves the lack of demand in the PIIGSF. Increase German unemployment perhaps. But then that would decrease consumption in Germany and demand in the EZ.

@ Mickey Hickey

In case you missed it!

The view that what is being sought is (i) a reduction in German exports and (ii) a consumer boom is the one to which the concerned vested interests in Germany respond but it is not the one actually being made by informed participants.

Your engineer son is better paid, assuming that he is working in Germany, because there is a chronic shortage of skilled – especially engineering – labour in Germany (estimated at 200,000 positions) as a result of the emphasis on certain product ranges in German exports at which the country excels.

The situation would not continue were it not for the common interest that skilled organised labour shares with employers. This is further confirmed by the stage that the negotiations have reached on a country-wide legislative minimum wage. The emerging compromise is to set up a commission to establish at a company level the appropriate level (!). This is but confirmation of another article of faith i.e. that the setting of wages and conditions is a matter for unions and labour and the government does not intervene. Mon oeil! as the French say.

with interest rates at the lowest in the history of mankind,

taxes at reasonable and stable levels,

education and infrastructure ranked 3rd out of many by the WEF,

wages at solid, but certainly not excessive levels,

already producing so much surplus output, that we get attacked on it,

I see neither the need for much more local investment, nor any hindrance to it, when this promises return beyond other alternatives, which are actually not that exciting, what would it be?

Just watching Deutschland-England,

I remember Irish fans with their fist to the heart, when “Einigkeit und Recht und Freiheit” was played before the opening of Irland-Deutschland, never seen something like that.

Maybe we should follow Paul W’s advice, and make more Irisch-Bairisch babies : – )

Lucinda,now now…..full discretion,hardly crystal clear.
“Following a thorough assessment, the Governing Council will decide on the start, continuation and suspension of Outright Monetary Transactions in full discretion and acting in accordance with its monetary policy mandate.”

Thanks for the link.
I particularly agree with this.
“Germany has managed to transform itself into Europe’s most resilient economy within a decade, yet the tables could turn as quickly.”

As to the shortage of skilled labour now and in the near future. In every country I have ever been in the corporate supported think tanks bemoan skilled labour shortages ad nauseam.

My son works for a Canadian multinational operating in 36 countries with a significant German operation. He is in the Systems (“design, build, operate, maintain”) Division. They bid on Dublin tracked transit before the bust. Manufacturing is done in Canada and Germany for the most part with “domestic content” dictating other trade bloc locations. He is paid mostly in Canadian Dollars. He is the one who tells me that Germany is no high paid paradise for anyone engineers included. He is in Italy this week I might get some insight into Italian conditions shortly. My own impression looking around Germany is that they peaked relatively speaking in the 1970s’. Low wages and low cost of financing are now the two pillars of German progress.

Capitalism has succeeded to the point where cannibalisation as predicted by Marx cannot be ruled out.
Charles Hugh Smith, Univ. of Hawaii.

mickey might be right faster than we think

Ireland and Spain are projected to grow faster thán Germany.

The sky is not falling. Germany is presently operating slightly above long term peak cruising speed, limited by demographics. And Euro things will work out.

Unemployable german capital will have to apply at miserable conditions in some other countries, as long as my idiot fellow country men are crazy about holding cash : – )

@ All


The discussion seems rather beside the point. Developments outside Ireland’s control, will so remain. To quote Moodys from the other thread.

“In September, Moody’s changed its outlook on Ireland’s Ba1 rating from “negative” to “stable”. An eventual upgrade depends, however, on Ireland’s economic fortunes, says Kristin Lindow, the rating agency’s lead analyst on Ireland. “If they continue to meet their fiscal consolidation targets, that would be one important element. The key element will be a return to growth that is substantial enough for them to move on to a downward debt trajectory.” ”

The question is whether fiscal consolidation will enhance or hinder the possibility of the return of growth, creating the conditions for which is not entirely out of the country’s hands. The answer must be IMHO; it depends! If devoted to taking unjustified rents – there is no shortage of examples – out of the economy, the answer is yes, if not no.

From Howlin’s speech today

“It [OMT] is therefore aimed at addressing systemic risks for the Euro as a whole and is not country specific in that regard. Having a credit line does not of itself guarantee access to OMT. The critical point about OMT is that its activation is a matter for the ECB acting in full independence.

@ All


If the German constitutional court decides in 2014 that OMT is contrary to the German constitution, that is its prerogative. Germany then has the choice of either changing the constitution or seeking the agreement of the other members of the EU to change the rules that permitted the ECB to decide on OMT. What the court cannot do, as it has been attempting to do in other instances, is itself decide whether or not OMT is contrary to EU law. Germany is bound by the EU treaties to respect the sole right of the European Court of Justice to rule on the conformity of the actions of the EU institutions with EU law.

cf. this Irish website dealing with the general legal background of the course largely set by Merkel for the rest of Europe to enable her to deal with constitutional issues that cause her domestic political problems in grappling with the difficulties impacting the euro area.

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