Time ECB Admitted its Mistake in Ireland - Colm McCarthy

[ang]

An interesting article from Colm McCarthy in todays Sindo and it certainly makes it look like the big bad ECB is the cause of all our woes and our poor aul Govt are faultless.

I especially wonder about this - "It would be a pity if the actions of the ECB had to be referred to the European Court by a member government".

Substitute "member government" with Enda, Eamon, Michael or even Lucinda and you can perhaps understand my wondering.

In summary, the IMF is saying that the debt burden on the Irish State is too high, and re-entry to the bond market on schedule is unlikely. They are also saying that the cost of repaying in full unguaranteed bank debt was imposed on the Irish Exchequer in October 2010 by the ECB, in pursuit of pan-European financial stability.

The ECB is entitled to pursue financial stability in Europe, through paying off unsecured bondholders in bust banks or otherwise.

But placing the burden on the balance sheet of a small distressed sovereign is hardly a proper exercise of the ECB's powers. It is not clear that coercing a government in this way is even within those powers. Article 35 of the ECB's statute provides as follows: "The acts or omissions of the ECB shall be open to review or interpretation by the Court of Justice of the European Union in the cases and under the conditions laid down in the Treaty on the Functioning of the European Union."

http://www.independent.ie/opinion/an...d-3147424.html


lets not forget there is also the outstanding issue of the letter sent from the ECB to Brian Lenihan in November 2010 which he (Brian) insisted "bounced" Ireland into bailout, surely Dept of Finance have a copy............

[C. Flower]

An interesting article from Colm McCarthy in todays Sindo and it certainly makes it look like the big bad ECB is the cause of all our woes and our poor aul Govt are faultless.

I especially wonder about this - "It would be a pity if the actions of the ECB had to be referred to the European Court by a member government".

Substitute "member government" with Enda, Eamon, Michael or even Lucinda and you can perhaps understand my wondering.



http://www.independent.ie/opinion/an...d-3147424.html


lets not forget there is also the outstanding issue of the letter sent from the ECB to Brian Lenihan in November 2010 which he (Brian) insisted "bounced" Ireland into bailout, surely Dept of Finance have a copy............

And the Banks "Side Letter" attached to the Memorandum ?

This man is off the wall. I saw him in Kilkenomics standing over the his lunatic idea that strategic prioritisation of spending cuts (say, to safeguard aspects of education) was bad - and an across-the-board swipe, good.

So, it is out of the mouths of madmen - and in fact I think it is a good idea.

Does the ECB have powers to 'horse trade' "you can only have ELA for your banks if you pay off private debt that is not yours" ?

[ang]

The "horsetrading" can be difficult to answer Cass because as we all know the ECB keeps "shifting tack" but it seems the conditionality for ELA is more onerous.

A bit more info on ELA here by Willem Buiter at Citi -

Emergency Liquidity Assistance (ELA) facilities can be created by national central
banks when the counterparty banks in their jurisdictions can no longer fund themselves at the regular facilities of the Eurosystem, either because their creditworthiness has deteriorated too much or because the quality of the collateral they offer is too poor to be acceptable at the Eurosystem. The ELA facilities can, subject to a number of provisos, take collateral not acceptable at the Eurosystem from counterparties that are not sufficiently creditworthy to access the Eurosystem.First, the GC of the ECB determines the limit on the total size of the ELA facility.3 Second, the terms and conditions (interest rates, valuation, haircuts etc.) set by the ELA facility typically are more onerous than those available at the regular credit facilities of the Eurosystem. These terms and conditions too are subject to approval by the GC of the ECB.

4 Third, although the liabilities of the ELA facility are Eurosystem liabilities (base money or non-monetary liabilities), the exposure of the ELA facility is not an exposure of the Eurosystem. Instead it is an exposure just of the NCB in question (see also Section 3 below). A full sovereign indemnity or guarantee by the national sovereign for this exposure of the NCB is supposed to be given. This protects the Eurosystem against losses that may be incurred by the ELA facility, as long as the loss-absorption capacity of the NCB and its sovereign are
adequate. When the NCB in question has little or no conventional loss absorption
capacity (capital plus reserves plus any capital gains it may be able to realise from
its revaluation account) the fact that its credit creation capacity is controlled and
capped by the GC of the ECB means that it cannot use seigniorage (the profits from
the issuance of central bank money [base money]) to meet its commitments.

5The guarantee of the sovereign is not worth much if the sovereign itself is insolvent or at
high risk of insolvency, as is the case, for instance, with Greece, Portugal and
Ireland, in our view

http://willembuiter.com/roublezone.pdf

[C. Flower]

C. Flower;69114]http://www.project-syndicate.org/com...nson12/English

Have you read this, Cato?

It's again an outside view telling the truth about default -

Johnson - Link

The figure that struck me is that the Banks had loaned out 3 times our GNP by the end of 2008.

How much of that will be repayable in a crippled economy ?

Great article. If I may quote the really important paragraphs from the middle of the article;

Ireland’s banks financed their rapid growth by borrowing from other European banks, so the health of Europe’s financial system has become entwined with the survival of these insolvent banks. It is no surprise that the ECB is now Ireland’s largest creditor – through buying up its government bonds. In the latest data (through the end of August), despite being two-thirds the size, Ireland received more ECB financing than Greece – totaling 75% of Irish GNP and growing rapidly.

The quid pro quo for this easy ECB money is that the Irish government must protect European creditors who would otherwise face large losses. The ensuing massive bank bailout, plus continued budget deficits and declining nominal GNP, means that Ireland’s debt is ballooning, while its capacity to pay has collapsed.

Investors naturally respond to unsustainable debt by selling bonds until interest rates become “ridiculous.” Those high interest rates strangle businesses and households, causing further economic collapse and making debt ever more unsustainable. To halt this downward spiral, Ireland’s risk of insolvency needs to be put to rest. Either banks need to default on their senior obligations, or the government will need to default alongside the banks. In either case, new austerity measures are needed, and Ireland will require substantial bridge financing.

Irish and EU politicians should take the lead in making these tough decisions, but the current leadership will not. Instead, the EU, the ECB, and Ireland have reached a Faustian bargain that keeps Ireland liquid (i.e., it gets euros), but does nothing to halt the growing likelihood of insolvency (i.e., its increasing inability to pay back those euros in the future).

The above is the real reason for the bank guarantee and for the nationalization of Anglo-Irish.

Just been reading Colm McCarthy's article from the Sindo, saying that the Government should take the ECB to the European Court, for forcing Ireland to repay bondholders, outside the remit of the ECB. Also reading the first 10 or so pages of this thread, that cover the period discussed by McCarthy, including the above post.

http://www.independent.ie/opinion/an...s-3203452.html

http://www.politicalworld.org/showth...ult#post268804

It's quite a picture.

[C. Flower]

Being discussed on Vincent Browne now.

[C. Flower]

Were Lenihan and Noonan threatened by the ECB ?

Of course they were.

[C. Flower]

Rabitte is lying surely that he hasn't heard about the ECB's letter ?

[Dr. FIVE]

absolutely, his lips are moving

[C. Flower]

Seamus Coffey disputes the amount paid to unsecured bondholders.

http://www.independent.ie/opinion/co...s-3206519.html

Rabitte says that "it was one step forward and two steps back" for Irish negotiations until Spain and Italy were in trouble.

[Dr. FIVE]

drip


drip



drip

[DCon]

Rabitte is lying surely that he hasn't heard about the ECB's letter ?

either a liar or an incompetent.

Could there be another option?

[Baron von Biffo]

Noonan says the "top secret" letter should be released by the Department he controls

Touch of the old Bertie trick of referring to his own government as 'they'.

A minister shouldn't be able, on his own authority alone, to override an FoI decision to release documents, but it's a perversion of the principle of FoI to say he can't override a decision to keep them confidential.

[Andrew49]

An angst written piece from a guy who can tell us the cost of things but has little knowledge of the value of these same things.

If the anxiety and worry - that's affecting many sections of this society - has finally seeped into the cohort that McCarthy resides in then 'WAHAAAY'. And about fookin time reality hit these guys.

[C. Flower]

Noonan says the "top secret" letter should be released by the Department he controls

http://www.independent.ie/national-n...d-3210209.html

We have a thread on this letter, so I'll move this post over, if you don't mind.

http://www.politicalworld.org/showth...nks#post270068

[DCon]

McCarthy in the Sindo/Indo

Ireland's prospects of regaining national solvency will be undermined unless a serious deal can be negotiated regarding bank-related debts, a substantial portion of which was unreasonably imposed by the European Central Bank (not by the troika) in the autumn of 2010. Of course the budget deficit also needs to be eliminated as quickly as possible.

There should be no premature celebration after a further sale of government bonds by the National Treasury Management Agency (NTMA) during the week. Selling bonds at unsustainable interest rates does not bring debt sustainability closer. The NTMA borrowed at just under six per cent. The funds are now on deposit at undisclosed, but much lower, interest rates. The immediate effect of borrowing at high rates, adding to cash balances, is to make the deficit worse, not better.

This additional debt was imposed on the Irish Exchequer by the European Central Bank, outside the terms of the financial programme and against the advice of the IMF, in circumstances which remain concealed. The legitimacy of this arbitrary action should be at the centre of the negotiations under way about debt relief for Ireland.

There will be debt relief anyway in whatever eurozone countries are unable to regain market access at affordable interest rates. They will default. In addition to a second default for Greece, market bond prices reflect high risks for Portugal, Spain and Italy, as well as Ireland. Until these countries can access sovereign credit in large quantities at interest rates of four per cent or so, the European sovereign debt crisis will lumber on. There remain serious doubts in the market about the commitment of European leaders to do what it takes.

Uniquely in the Irish case, there are grounds for believing that a portion of the sovereign debt arose through actions beyond its mandate by the ECB. The ECB does not enjoy explicit powers to dictate the terms on which bust banks are to be resolved. It appears, however, to have assumed such powers, under the presidency of Jean-Claude Trichet, before and during the negotiation which led to the November 2010 rescue.

Should the Irish Government seek judicial review of the legality of the ECB's behaviour at the European Court of Justice, as is provided for in the ECB statute, all of the relevant records should come into public view, including not just the undisclosed letter, but also emails and phone records from the period, covering any contacts between the ECB and European banks and creditor lobby groups. It would also be important to know whether any influence was brought to bear on the ECB by the finance ministries of Germany and France.

Wolfgang Schauble is not keen on a 'reward' for Ireland. Perhaps 'restitution' would sound more acceptable.

http://www.independent.ie/opinion/an...n-3210082.html