ECB driving this, not that hard to leave the Euro

Justin Collery

Morning all,

I had two realisations last night in the car on the way into town.

1) The ECB is driving this. They have been very uncomfortable giving cash to Greek and Irish banks, have stated for a long time they wanted to end it, and they are now showing their teeth. These guys are supporting us to the tune of €100bn at the moment, so this is a big game of chicken.

2) It's not hard to leave the Euro. The ECB could make the calculation that it is cheaper to dump Ireland than save it. How would they do it? Put €200bn into the Irish central bank. Impose exchange rate controls. New Irish punt is unveiled, backed by €200bn. The ECB is off the hook. Debt restructuring begins.

The last point is important. I have been thinking about this for a while and I do not see a way out of this mess without debt restructuring from household to government. It's not that it's in our interest to default, not paying back your debts always looks attractive when your stuck for cash, no, the country will simply cease to exist as a viable entity without default. Ireland will become a failed state. (For the record I'm not advocating leaving the Euro, I think we should stay in it, I'm advocating default)

murphaph

All that Euro denominated debt on tha balance sheets of large French and German banks would surely make it more attractive for them to lend us a few quid, get us to restructure our welfare, public services and tax structures and hopefully get repaid some day.

If Ireland leaves the Euro, the German banks will have to realise the losses and this could be quite a shock to the Eurozone.

I see only one way out: Stay in, take the loan, do the restructuring and work hard for a generation

Citizen_Cutback

Why do you think that we were told to bailout Anglo Irish Bank in the first place?

AFAIK in September 2008 the ECB were into AIB (Anglo) for nearly €20 billion, the Irish Central Bank was on the hook for about €8 billion in addition.

Maybe this is where we want to have the ECB:

We wont take the bailout at say 6%?

What is the ECB charging in interest?

We need the ECB to loan us €80 billion to pay for the Bank Bailout at say 2%.

They can do it if they have to!

Lets give them Anglo and NAMA as collateral.

We can then use our unspent Bonds reserves to finance our Budget deficit without returning to the Bond markets until maybe 2012.

The ECB could provide us with an Irish solution to an Irish problem.

The ECB thought that they could transfer bank debt onto the Irish citizenry; well maybe not.

The ECB should be left holding the Nuclear device that is Anglo-NAMA.

It might be the price they will have to pay for bailing out the Euro!

View

jcollery wrote: »

2) It's not hard to leave the Euro. The ECB could make the calculation that it is cheaper to dump Ireland than save it. How would they do it? Put €200bn into the Irish central bank. Impose exchange rate controls. New Irish punt is unveiled, backed by €200bn. The ECB is off the hook. Debt restructuring begins.

The ECB doesn't have the power to do this. It is bound by the EU Treaties and resulting laws much as the member states are. They are not optional extras and changing them takes a long time.

Justin Collery

View wrote: »

The ECB doesn't have the power to do this. It is bound by the EU Treaties and resulting laws much as the member states are. They are not optional extras and changing them takes a long time.

I'm sure the ECB has the latitude to do what ever it deems necessary to fulfill its mandate. I'm sure the ECB had never intended buying Irish bonds, or providing liquidity to Irish banks, but the system would collapse without it, so it does it. I'm sure if the ECB wanted it could place €200bn in the Irish central bank, and the irish government could announce it was leaving the Euro.

I don't think this will happen, but some say it is impracticable and I am saying perhaps not as impracticable as you may think.

View

jcollery wrote: »

I'm sure the ECB has the latitude to do what ever it deems necessary to fulfill its mandate. I'm sure the ECB had never intended buying Irish bonds, or providing liquidity to Irish banks, but the system would collapse without it, so it does it. I'm sure if the ECB wanted it could place €200bn in the Irish central bank, and the irish government could announce it was leaving the Euro.

I don't think this will happen, but some say it is impracticable and I am saying perhaps not as impracticable as you may think.

The ECB doesn't have that authority. It has to act within the confines of the EU treaties. For that matter, the Irish government has to act within them and also Bunreacht na hEireann. Remember, it (B na hE)contains Article 29.4.6:

6. No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State, before, on or after the entry into force of the Treaty of Lisbon, that are necessitated by the obligations of membership of the European Union referred to in subsection 5 of this section or of the European Atomic Energy Community, or prevents laws enacted, acts done or measures adopted by—
i. the said European Union or the European Atomic Energy Community, or by institutions thereof,
ii. the European Communities or European Union existing immediately before the entry into force of the Treaty of Lisbon, or by institutions thereof, or
iii. bodies competent under the treaties referred to in this section,
from having the force of law in the State.

In other words, the government can't unilaterally decide to ignore the EU Treaties as the relevant EU laws would take precedence in this case.