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  • 09-02-2011 4:32pm
    #1
    My name is URL
    Registered Users, Registered Users 2 Posts: 25,070 ✭✭✭✭


    I came across this article last week.

    It was also reported here to a small extent and not in such an alarmist language. I say alarmist because of the use of the term 'counterfeiting', but realistically what else could it be called?

    Who will be responsible for paying this money back? Will printing our own unbacked money not devalue the Irish euro, and will it not lend itself to causing rapid inflation? Couldn't this sort of thing destabilise the already fragile situation within the euro-zone?

    Sorry for the barrage of questions but I just can't wrap my head around it.


Comments

  • #2
    Anonymous1987
    Closed Accounts Posts: 784 ✭✭✭Anonymous1987


    My name is URL wrote: »
    I came across this article last week.

    It was also reported here to a small extent and not in such an alarmist language. I say alarmist because of the use of the term 'counterfeiting', but realistically what else could it be called?
    It is not counterfeiting. The Irish central bank is acting as a lender of last resort, the market is not lending to the banks so the Irish bank is offering short term emergency loans (known as liquidity) so the banks can meet their short term liquidity needs.
    My name is URL wrote: »
    Who will be responsible for paying this money back?
    The banks receiving the liquidity will pay this money back with interest.
    My name is URL wrote: »
    Will printing our own unbacked money not devalue the Irish euro, and will it not lend itself to causing rapid inflation?
    There is no such currency as the Irish Euro, only the Euro. These are short term loans (apparently the majority are under 7 days in duration) so if the banks can return to the market for liquidity then the Irish central bank can withdraw the liquidity measures quickly preventing inflation.
    My name is URL wrote: »
    Couldn't this sort of thing destabilise the already fragile situation within the euro-zone?
    These measures are taken to stabilise the Irish financial system by giving banks a life line before they can return to market lending. The truth is the measures taken are alarming not for prospect of "printing money" but because it appears the government has offered a guarantee for the emergency lending.

    http://www.independent.ie/business/irish/banks-pay-less-than-3pc-interest-on-euro51bn-of-emergency-funding-2529378.html

    http://www.bloomberg.com/news/2011-01-28/irish-give-51-billion-more-reasons-to-avoid-bonds-euro-credit.html


  • #3
    andrew
    Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 3,372 Mod ✭✭✭✭andrew


    I read this and it says that "The ELA scheme is understood to involve collateral which would not normally be acceptable to the ECB. In the case of Anglo Irish, the bank pledged the promissory notes provided by the Irish government as part of its recapitalisation of the bank."

    Does this mean that the Central Bank was lending to banks with Government revenue as collateral? So essentially the state was lending, holding it's own assets as collateral? If this is the case, it sounds pretty desperate.


  • #4
    Anonymous1987
    Closed Accounts Posts: 784 ✭✭✭Anonymous1987


    andrew wrote: »
    I read this and it says that "The ELA scheme is understood to involve collateral which would not normally be acceptable to the ECB. In the case of Anglo Irish, the bank pledged the promissory notes provided by the Irish government as part of its recapitalisation of the bank."

    Does this mean that the Central Bank was lending to banks with Government revenue as collateral? So essentially the state was lending, holding it's own assets as collateral? If this is the case, it sounds pretty desperate.
    That's how I understand it. While most of the funding is going to Anglo, the government seems to be selling off Anglo's deposits at the same time, see here which would seem to be at odds with offering ELA?


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