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Morning Ireland this morning carried an interesting exchange with Minister Rabbitte and his interviewer Cathal Mac Coille. At about 8 minutes in, talking about the EU-wide debt situation and Enda Kenny’s meeting with Dr Merkel, the Minister says the following:

Rabbitte: …. The Minister for Finance has hinted at areas where we are trying to alleviate the burden of debt that is on Ireland as a result of the legacy and the circumstances we’ve inherited from the last government and within the terms of the Memorandum of Understanding. I think he has set that out for example in maybe not explicit terms but significantly explicit terms in respect of the promissory notes arrangement entered into by the previous government where in excess of 30 billion debt—private debt—is expectedto be born by the government here. In the general arrangement, you know, it is a circumstance that this burden was placed on Ireland in order not to infect the banking system of the Eurozone. Now that is a very unfair burden and given the way we have complied with the strictures on us we are looking for alleviation on that.

The interview continues:

Cathal MacCoille: What about Treaty change? What is our position? It seems to be getting closer and closer, and the Germans are talking harder and harder about it.

Rabbitte: …no Irish political party wants a referendum, but I don’t think we shouldn’t dismiss sight unseen. I’ve great confidence in the common sense of a majority the Irish people. If there was a pathway out the morass we find ourselves in now, and if there was a significant alleviation in terms of the debt burden promised as a result of whatever Treaty changes might be contemplated then we would have to look at that situation very seriously. We’re not looking for a referendum we don’t want a referendum  but I’m not prepared to dismiss the idea of a referendum out of hand without knowing the context and without knowing what it would offer the Irish people.

Cathal MacCoille: It sounds like the money terms would need to be right.

Rabbitte: Debt sustainability is still an issue, but yes.

Is this the new talking point? Is it that case that Ireland’s promissory notes are the price of a ‘yes’ from the government to a possible Treaty change? If so: what should the ‘discount’ be? Karl (and indeed Lorcan) have been spending quite a bit of time on the promissory note story, and given the sums of money involved, it’s something we should keep an eye on.

The FT has an extended editorial on the euro crisis today – it advocates turning the EFSF into an ECB-funded bank.

The role of long-term debt in the funding of banks is addressed in this article in the latest ECB Monthly Bulletin.

The CGFS has put out a new report on this topic.

Abstract

Global liquidity has become a key focus of international policy debates over recent years. This reflects the view that global liquidity and its drivers are of major importance for international financial stability. The concept of global liquidity, however continues to be used in a variety of ways and this ambiguity can lead to unfounded and potentially destabilising policy initiatives.

This report analyses global liquidity from a financial stability perspective, using two distinct liquidity concepts. One is official liquidity, which can be used to settle claims through monetary authorities and is ultimately provided by central banks. The other concept is private (or private sector) liquidity, which is created to a large degree through cross-border operations of banks and other financial institutions.

Understanding the determinants of private liquidity is of particular importance. As many financial institutions provide liquidity both domestically and in other countries, globally, private liquidity is linked to the dynamics of gross international capital flows, including cross-border banking or portfolio movements. This international component of liquidity can be a potential source of instability because of its own dynamics or because it amplifies cyclical movements in domestic financial conditions and intensifies domestic imbalances.

Policy responses to global liquidity call for a consistent framework that considers all phases of global liquidity cycles, countering both surges and shortages. Measures to prevent unsustainable booms in private liquidity are linked with micro- and macroprudential policies as well as the financial reform agenda. Country-specific or regional liquidity shocks, in turn, may effectively be addressed through self-insurance in the form of precautionary foreign exchange reserves holdings and existing arrangements which essentially redistribute liquidity. However, truly global liquidity shocks necessitate direct interventions in amounts large enough to break downward liquidity spirals. Only central banks have this ability.

Hoisted from the comments (ht Michael Hennigan), here’s Colm McCarthy in today’s Sunday Independent writing on the Eurozone crisis. It’s worthy of reproduction in its entirety on the site but I’m not sure the Indo editors would be happy about it. So head over and read it there, and head back to comment. This piece usefully advances the debate we’ve been having in another thread, so I’ll close that one and hope commenters will move up to this one. From the piece:

If the eurozone is to become a credible currency union for the long haul, assuming it survives the efforts of its rescuers, there will have to be treaty changes. It is foolish to dismiss the possibility that sensible treaty changes, worthy of support even from countries damaged by the bungling response to the crisis, cannot be envisaged.

These treaty changes could involve a loss of fiscal sovereignty for Ireland. But Ireland has lost its fiscal sovereignty already.

There is, in any event, no cost in accepting a regime of fiscal discipline to which any sensible country would willingly subscribe.

The real issue is whether Europe can create a proper central bank and accountable decision-making authority to go with its premature currency union. If this can be achieved, the euro is worthy of rescue.