Lenihan: Ireland forced to take bailout

Amhran Nua

This in the Irish Times today, former Finance Minister Brian Lenihan offers us a glimpse into the events surrounding the bailout. While I'd be the first to treat anything he says with a healthy dose of scepticism, I don't see any reason that his comments might be factually incorrect.

Brian Lenihan has claimed the European Central Bank forced Ireland into taking a bailout and rejected claims by a senior ECB figure that the bank warned Ireland in mid-2010 of the dangers it faced.

He has also accused members of the ECB executives of briefing against Ireland and of “betrayal”.

...

He describes as “at variance with the facts” a statement made in an interview in this newspaper in January by Lorenzo Bini-Smaghi, one of six executive board members of the ECB.

In the interview Mr Bini-Smaghi claimed ECB president Jean-Claude Trichet had pressured the Government from mid-2010 to bring forward the 2011 budget. Mr Lenihan denies any such representations were ever made.

The position of the ECB on Ireland’s seeking of assistance was different from that of the European Commission, said Mr Lenihan.

“I don’t think the commission were anxious to bounce member states into a programme.

“That was my strong impression from my discussions with Commissioner Rehn.” he said, adding that “the ECB clearly subscribed to a different view.”

...

In September Mr Lenihan said the ECB appeared to believe the Irish banking crisis could be solved by greater budgetary stringency. According to Mr Lenihan, the Frankfurt-based central bank had shown relatively little interest in the problems of the Irish banking system.

On the final terms of the bailout, Mr Lenihan described the interest rate charged as “above what was required” and the schedule to downsize the banking system as “unimplementable”.

What this appears to reveal is a clear split in the motivations and policies of the two groups which should be most responsible for helping the Eurozone recover; their split with IMF advice is already a matter of record. The implication being that the ECB/EU is effectively a financial ship without a rudder, a ship we've nailed our flag to, with no master plan for recovery, responding to events as they occur.

Troubling stuff indeed.

ei.sdraob

http://www.boards.ie/vbulletin/showthread.php?t=2056247890

tho your OP is better than mine, mods please merge

Liam Byrne

Brian Lenihan.........rejected claims by a senior ECB figure that the bank warned Ireland in mid-2010 of the dangers it faced.

Echoes of Bertie in that sentence alone.

The fact is that nothing FF say can be accepted as truth at this stage, because they've been twisting and turning every way possible to make themselves look less bad.

So, in the other immortal echo:

"I don't accept that"

ei.sdraob

There is another related story out now on the bailout

Lenihan also differed with the ECB on policy issues. “I didn’t share the bank’s analysis that putting the fiscal house in order on its own would solve the banking difficulties. But that seemed to be a strong conviction in the upper echelons of the bank”.

He claimed that prior to November, that the ECB had been “rather disinterested in Ireland” in relation to banking issues and that had it made suggestions on changing the approach to the banks “we would have been willing to contemplate a more aggressive banking policy”.

For the Green Party, the suddenness of the move in mid-November came as a surprise. Eamon Ryan, then minister for the environment, received a phone call from a journalist at midday on Friday 12th. His comment was sought on rumours that Ireland was being pressed to seek help.

Ryan recalled that it was “quite a shock” and that there had been no indication prior to that time that Ireland would be pressured to seek assistance.

It also appears to have been unexpected for the International Monetary Fund’s (IMF) Ajai Chopra. He said that he was in Brussels for the week beginning November 15th to discuss wider European issues with the European Commission. He was scheduled to continue on to Frankfurt but instead cancelled the Frankfurt meetings and flew to Dublin in the middle of the week.

Slydice

I'm confused though... wasn't Lenihans party in Power for more than 10 years before this all blew up so bad?

So, this is something akin to someone on the deck of the titanic complaining that they were shoved into the line for one of the evacuation row boats that never actually worked.

Liam Byrne

ei.sdraob wrote: »

There is another related story out now on the bailout

Both men said Rehn had communicated the ECB’s unwillingness to continue its support of the banking system indefinitely

Lucky for the ECB it had a choice in the matter; the average person who had nothing to do with the crisis has no choice.

.....had it made suggestions on changing the approach to the banks “we would have been willing to contemplate a more aggressive banking policy”.

So if the ECB had "made suggestions", Lenihan would have considered doing things correctly, but because they didn't they decided to keep us on the current route without actually doing anything worthwhile themselves ? Brilliant.

This intervention came, he said, when he learnt the night before that an editorial was to appear in the Financial Times newspaper

What is it with Honahan and Cowen and last-minute late-night revelations ? Why didn't they just do their job without everything becoming a crisis ?

It is worrying that the European Central Bank didn’t read how unimplementable the original ideas about the Irish banking system are.

Those would be the "original ideas" that led Lenihan to claim "cheapest bailout ever" ? Why was it up to the ECB to figure out what was implementable and otherwise, considering Lenihan now uses the defence that he didn't know how bad things were ?

ei.sdraob

Liam Byrne wrote: »

the average person who had nothing to do with the crisis has no choice.

Oh look what you done now !
now we going to endup with dozens of pages of everyone being blamed and told that ALL are "responsible" except the people and parties actually responsible.

leeroybrown

Normally I wouldn't believe a word out of Lenihan's mouth without proof but this seems like it's pretty close to the truth. It seemed pretty obvious at the time that government were being arm-twisted by at least one arm of the EU. The FF/Green government still shoulder most of the blame for dealing with the mess so badly but it doesn't change the fact that they were deliberately pushed into a 'solution' that suited external parties and not us.

later12

Of course it is pretty close to the truth; the Portuguese said a number of weeks ago that the ECB applied this pressure. It didn't make the headlines in Ireland iirc.

I am a little surprised that it has made the front page; that the ECB were applying pressure to take a bailout should come as little or no surprise to anybody. They couldn't go on buying up Irish sovereign debt on the markets indefinitely, that role should never have been forced on them.

later12

Slydice wrote: »

So, this is something akin to someone on the deck of the titanic complaining that they were shoved into the line for one of the evacuation row boats that never actually worked.

Nice analogy, and yes.

ardmacha

So, this is something akin to someone on the deck of the titanic complaining that they were shoved into the line for one of the evacuation row boats that never actually worked.

I think the Titanic analogy would be something like this. The ships Captain drove on at speed into the iceberg, telling those who suggested slowing down to commit suicide. When the ship hit, they consulted the ships owner, who suggested increasing the pumps and who said that there was no need for evacuation. Meanwhile the passengers were increasingly positioning themselves of their own accord near the lifeboats.

Scofflaw

later10 wrote: »

Of course it is pretty close to the truth; the Portuguese said a number of weeks ago that the ECB applied this pressure. It didn't make the headlines in Ireland iirc.

I am a little surprised that it has made the front page; that the ECB were applying pressure to take a bailout should come as little or no surprise to anybody. They couldn't go on buying up Irish sovereign debt on the markets indefinitely, that role should never have been forced on them.

They may also have been just the teensiest bit concerned about the apparently bottomless appetite of Irish banks for debt. Being stalked by zombie banks groaning "liquidity...liquidity" must be a sort of central banker's nightmare.

cordially,
Scofflaw

later12

There is that rather major issue, yes. In fact a number of months ago the ECB warned of high liquidity dependent banks which it likened to drug addicts, it is no secret that the ECB is worried about their function being simply reduced to a rehab centre for strung out banks. I find it hard to fault them here.

If anything, the biggest outrage is that this, along with the ridiculous situation whereby the ECB are forced to buy sovereign debt and artificially suppress yields, was never designed to be the function of the ECB, and merely represents an unwillingness of member states to solve the problem comprehensively themselves.

Amhran Nua

later10 wrote: »

If anything, the biggest outrage is that this, along with the ridiculous situation whereby the ECB are forced to buy sovereign debt and artificially suppress yields, was never designed to be the function of the ECB, and merely represents an unwillingness of member states to solve the problem comprehensively themselves.

So you'd agree that the fabled "troika" headed by Cardinal Trichelieu hasn't really got a plan?

later12

Amhran Nua wrote: »

So you'd agree that the fabled "troika" headed by Cardinal Trichelieu hasn't really got a plan?

They do have a plan, I just don't think much of it.

I'm also not naive enough to be of the opinion that Trichet is its leader, btw. Anybody who thinks that the ECB are an eager participant in fiscal matters is kidding themselves.

Scofflaw

Amhran Nua wrote: »

So you'd agree that the fabled "troika" headed by Cardinal Trichelieu hasn't really got a plan?

There's always going to be a very strong element of muddling through when quite so many different parties are involved, many of them with either a de facto or de juro veto, and all of them with their own interests to protect. Add to that the fact that they cannot dictate the actions of the most important "party" - the markets - but rather are having their actions dictated by them, and the fact that there is no known and obvious practical path to follow, while virtually every school of economics has a theoretical solution.

cordially,
Scofflaw

Amhran Nua

later10 wrote: »

I'm also not naive enough to be of the opinion that Trichet is its leader, btw.

Well the IMF didn't get it's way, now we're hearing that the EU's route wasn't taken, so it does indeed look very much like the ECB is the primary actor here. The leader of which is of course Trichet.

Scofflaw wrote: »

There's always going to be a very strong element of muddling through when quite so many different parties are involved, many of them with either a de facto or de juro veto, and all of them with their own interests to protect. Add to that the fact that they cannot dictate the actions of the most important "party" - the markets - but rather are having their actions dictated by them,

Sure, but it's not comforting to envision the degree of muddlement which seems to be emerging. It's also not comforting that a banking body has taken the reins of the process, which would explain the bondholders being held in greater esteem than sovereigns.

Scofflaw wrote: »

and the fact that there is no known and obvious practical path to follow, while virtually every school of economics has a theoretical solution.

There is a known, tried and tested solution, debt for equity swaps and protect depositors. I'd also be willing to wager that such an action would pacify the markets as well.

leeroybrown

The important thing to remember here is that the ECB's primary responsibility is to protect the Eurosystem and the value of the Euro. Their board members have a responsibility to work to this end even if it happens to be to the detriment of an individual member state for the greater good.

Liam Byrne

ei.sdraob wrote: »

Oh look what you done now !
now we going to endup with dozens of pages of everyone being blamed and told that ALL are "responsible" except the people and parties actually responsible.

If someone wants to come on here and lie, let them off.

Mr.Micro

Lenihan had absolutely no credibility whilst in office and he certainly has none now with his musings in the Irish Times. Anything for a headline now that he is in a very small party. Who cares what you say Mr. Lenihan, others have to pay for FF policies and gross incompetence, and nobody will believe a word you say. FF will be as incompetent in opposition as they were in Government.

Sand

I dont see why its a choice between accepting Lenny is blameless or the ECB is blameless and by default pitting the awful reputations of both against each other. The most likely explanation is that both Lenny and the ECB have been completely hamfisted in their handling of the Irish situation. Lenny because he and his cohorts were so incredibly incompetent, and the ECB because theyve been mostly disinterested in Ireland ever since 2001 and incompetent in general when it comes to handling the European banking crisis. Where the ECB have been interested in Ireland, its been to punish Ireland for crimes real and imagined.

Its not surprising Ireland was forced into the bailout. Its very clear the ECB was deeply unhappy with the liability it was taking on and was trying to extricate itself and briefed against Ireland to the media to try and force the EU to come in and help the ECB get off the hook. Its intriguing how the ECB was seemingly so powerless to prevent the dangerous rise of rogue banks like Anglo Irish, but with a few careful words to the right journalists could force a Sovereign member state into debt bondage.

The ECB achieved its aims by shifting the support onto the books of the Irish central bank (and hence the Irish taxpayer), and the true measure of ECB support can be measured by how the ECB left the FG/Labour government looking like Billy No-Mates when Noonan was clearly fishing for a definite declaration of ECB support for the Irish banking system.

@Amhran Nua

The implication being that the ECB/EU is effectively a financial ship without a rudder, a ship we've nailed our flag to, with no master plan for recovery, responding to events as they occur.

This is true - theres been a view that Ireland should simply surrender all control and throw everything into the court of the ECB, do whatever they say, on whatever schedule they want and somehow, someway, they will figure out some solution that will magically align with the interests of the Irish people. This has been represented as the calm and responsible course of action, with the underlying narrative that the feckless and reckless Irish cant rule themselves and ought to find some responsible British, German or French person to tell them what to do.

The truth is they dont have a solution, and certainly not one that will align with the interests of the Irish people.

@Later10

If anything, the biggest outrage is that this, along with the ridiculous situation whereby the ECB are forced to buy sovereign debt and artificially suppress yields, was never designed to be the function of the ECB, and merely represents an unwillingness of member states to solve the problem comprehensively themselves.

The ECB has very clearly ruled out member states, specifically Ireland, solving their problems comprehensively themselves for fear of contagion. If anything, the ECBs public position has made final resolution all the more difficult - default is going to be the final resolution, everyone knows it, expects it and is already pricing it in. But the ECB has to find someway to be seen to oppose it, but yet allow it.

Who knows, perhaps theyll just call it "restructuring".

mike65

BBC radio 4 1.30 pm today, the Bailout Boys go to Dublin

http://www.bbc.co.uk/programmes/b010mryv

later12

Sand wrote: »

I dont see why its a choice between accepting Lenny is blameless or the ECB is blameless and by default pitting the awful reputations of both against each other

I don't think that anybody is saying that the ECB is blameless, I think that some of its executive board members have acted irresponsibly, and that some have acted very responsibly. The question at hand is whether the ECB applied pressure to Ireland to take a bailout; I doubt that anybody seriously doubts that. It makes perfect logical sense, good business sense, and corresponds with what the Portuguese have already said about their case.

[ECB]...incompetent in general when it comes to handling the European banking crisis.

Explain how you think the ECB have been incompetent in handling the banking crisis, in terms of where they have an actual jurisdiction.

If anything, the ECBs public position has made final resolution all the more difficult - default is going to be the final resolution, everyone knows it, expects it and is already pricing it in. But the ECB has to find someway to be seen to oppose it, but yet allow it.

Who knows, perhaps theyll just call it "restructuring".

I know you don't seem to believe this, but it's actually very important not to call a voluntary restructuring an 'event of default' as it is written on bond indentures, that would have serious implications for CDS on Ireland for example. In the case of a voluntary restructuring (which I'm in favour of), no 'event of default' is recorded. Believe it or not this actually makes a difference to investors and regulators.

femur61

I know we are all suffering because of the bailout. But hasn't the scandolous salaries some of the top earners been exposed, why do we need 166 TD's (Greater Manchester same population has 28), the insane pensions the bankes are getting, the power the unions have in the government, the greed of many, people went mad they had a bit of money and they were behaved with such arrogance.

the groutch

hard to know what to believe in politics anymore.
it's a case of either

(a) Lenny is telling the truth. the EU needed the bailout to protect the senior bondholders in France & Germany, and bullied FF into taking the bailout. this however shows how incompetent they are, not realising that FF were in the true position of power, but still allowing themselves to be railroaded, and unable to secure a reasonable rate for a bailout we didnt even need.

or

(b) Lenny is lying, and this is nothing more than a tactical ploy by Meehole, to try rebuild the FF party by creating the illusion that the decision to take a bailout was effectively beyond their control.

thebman

Sure we were forced to take bail out.

Lenny asked for a hand out!!

Amhran Nua

the groutch wrote: »

(a) Lenny is telling the truth. the EU needed the bailout to protect the senior bondholders

The ECB, not the EU, important difference there.

ei.sdraob

Economist Colm McCarthy has said that there are "widespread suspicions" that the European Central Bank fostered a run on Irish banks to force the last Government to seek a bailout from the EU-IMF.

In the Sunday Independent today (below and page 23), Mr McCarthy says that the ECB behaved in a "bullying fashion" towards Ireland by threatening to withdraw liquidity support and "fostering" a run on the banks.

more on the subject

and the bbc4 radio show on youtube

https://www.youtube.com/watch?v=MbnW7ofKYgo

later12

Encouraging Ireland into an inevitable bailout bailout is one thing - in fact it is quite sensible to realise your situation at an early stage and react quickly, so we as Irish people ought to be grateful that the ECB applied pressure to make our traditionally lethargic government see sense.

However, it is quite another thing entirely to act deliberately to arouse public disquiet in the media over a member state's banking system in order to lure that member state into the crisis mechanism, i.e. the bailout process. Should this prove true, there must be consequences.

I would like to see a situation whereby the Government request the minutes of the relevant ECB meetings to be made public in relation to this issue, so that it might be settled for once and for all.

edit: it's worth adding that one should keep in mind the ECB's motives behind allegedly causing disquiet, and motives behind allegations of their causing disquiet.
Firstly, the ECB are supplying huge volumes of cash into the zombie Irish banking system, which isn't particularly a role they like filling. Secondly, the ECB have been forced into engaging with fiscal policy, both through managing the crisis mechanism and through the artificial suppression of EU sovereign bond yields by secondary purchase, which is something they are uncomfortable with, and obviously so totally outside their remit it's quite remarkable. So they do have an incentive.
However, nobody should deny the incentive that a former Government finance minister, still a politician, has in seeking to assign the blame elsewhere. He too, has a motive in this. He knew his radio 4 interview would be given major attention, and he could only really have gained from saying what he did. So lets keep a balance and await evidence.

20Cent

Colm McCarthy said that all communications between the Gov and the ECB should be published and the publication of ECB council minutes. This would be a good start.

ei.sdraob

later10 wrote: »

Encouraging Ireland into an inevitable bailout bailout is one thing - in fact it is quite sensible to realise your situation at an early stage and react quickly, so we as Irish people ought to be grateful that the ECB applied pressure to make our traditionally lethargic government see sense.

However, it is quite another thing entirely to act deliberately to arouse public disquiet in the media over a member state's banking system in order to lure that member state into the crisis mechanism, i.e. the bailout process. Should this prove true, there must be consequences.

I would like to see a situation whereby the Government request the minutes of the relevant ECB meetings to be made public in relation to this issue, so that it might be settled for once and for all.

@namawinelake has the following analysis

This issue was touched upon on here, two weeks ago & it seems lamentable that there hasn’t been any challenge fromIreland about the ECB’s apparent extortionate threat to withdraw its role as lender of last resort. Although membership of the euro constrains our monetary policy, membership was also supposed to give us a colossus of a central bank inFrankfurt to provide a lender of last resort service. So as long as the assets in Irish banks were eligible then the ECB had to, that is, didn’t have discretion, provide liquidity funding to those banks. There seems to be an acceptance inIreland that we are somehow getting a premium service from the ECB in it providing a lender of last resort service – this isn’t the case at all, it is the role of a central bank to provide a lender of last resort service on eligible assets. But in return for this perceived premium service, we have promised, in return, not to burn bondholders. If we hadn’t joined the euro and relied wholly on the Central Bank ofIreland, I cannot imagine that institution demanding that bondholders in insolvent Irish banks be repaid with funds provided by Irish citizens, in return for providing a national lender of last resort service.

So as far as I can see, the ECB:

* Partially helped fuel the bubble here and in other EU countries such as Spain via its rate/inflation policy which did not take into account out of control property inflation
* Tried to wash its hands of any responsibility, LBSs inflamatory comments last week blaming the electorate and putting responsibility on taxpayers
* Not willing to act as a lender of last resort, which is its job!
* and spreading fud in media pushing Ireland (which we where told by so many posters here, was well funded) towards a "bailout"

So we have a centralbank which in some cases not doing its job and in others overstepping its bounds, and then trying to wash it hands clear of any responsibility


How about we mail the keys to Irish banks over to ECB headquarters and wash our hands of the banking responsibilities, they got bank assets in return for their "extraordianary support" they can keep them banks I say!

With the banking problem out of the way we can then concentrate on the deficit problem which is a different beast altogether.

later12

ei.sdraob wrote: »

* Not willing to act as a lender of last resort, which is its job!

Same old posts. Just in response to the above can you please show everyone in the audience how the ECB is unwilling to lend as opposed to being, understandably, uncomfortable about its loan exposures.

Can you also grasp the fact that LBS is one member of the executive board, that other members have come out with completely different statements, and that this has nothing to do with the OP apart from your paranoia about the ECB.

ei.sdraob

later10 wrote: »

Same old posts. Just in response to the above can you please show everyone in the audience how the ECB is unwilling to lend as opposed to being, understandably, uncomfortable about its loan exposures.

Can you also grasp the fact that LBS is one member of the executive board, that other members have come out with completely different statements, and that this has nothing to do with the OP apart from your paranoia about the ECB.

Why is it being uncomfortable about doing its job!

Where were their "concerns" when the likes of Anglo where growing exponentially, and money flowing into the country and property assets where inflating by double digit amounts year on year?

later12

ei.sdraob wrote: »

Why is it being uncomfortable about doing its job!

Because it is lending vast sums of cash to a country that is unlikely to pay it all back. Obviously. Again, I'll ask you; can you show us how the ECB is unwilling to lend?

Where were their "concerns" when the likes of Anglo where growing exponentially, and money flowing into the country?

Oh for goodness sake, a lot of the problem here is misunderstanding the role of the ECB.

How, exactly, does it not get through that the ECB have had no role to play in regulating the Irish banks nor in overseeing the Irish regulator. The furthest they could go was as set out in the highly insufficient Lamfalussy Process, which amounted to practically nothing. On foot of the government's decision to keeping Irish banks in business, the ECB feel compelled to co-operate by forwarding copious amounts of liquidity.

P. Breathnach

ei.sdraob wrote: »

Why is it being uncomfortable about doing its job!

Where were their "concerns" when the likes of Anglo where growing exponentially, and money flowing into the country?

Any concerns that they might have had were assuaged by the Central Bank, the Financial Regulator, the Irish establishment generally, the banks themselves, the Irish media.... [See Nyberg Report].

ei.sdraob

later10 wrote: »

Because it is lending vast sums of cash to a country that is unlikely to pay it all back. Obviously.

Aha so they know these banks are bankrupt and without their ECB support insolvent! :rolleyes:

Which raises the question as to why these banks are not being wound down with creditors loosing out in an orderly fashion, oh wait closing the banks would mean bondholders would loose out! we cant have that now can we :rolleyes:

And worse them not providing the support they are required to provide would create a bank run, the very thing they want to avoid and have to prevent, oh what a conundrum the ECB have on their hands :rolleyes: does that give them the right to try to push a government (however bad!) out of power and tell all the taxpayers that its their problem

later10 wrote: »

Again, I'll ask you; can you show us how the ECB is unwilling to lend?.

The comments from ECB that they where "uncomfortable" about lending to Irish banks, once again 1) its their job and 2) they are getting assets in return which pass their acceptance criteria.
Billions of "support" was shifted from ECB and onto our CB since as well.

later10 wrote: »

Oh for goodness sake, a lot of the problem here is misunderstanding the role of the ECB.

Is it not their job to act as lender of last resort?

later10 wrote: »

How, exactly, does it not get through that the ECB have had no role to play in regulating the Irish banks nor in overseeing the Irish regulator. The furthest they could go was as set out in the highly insufficient Lamfalussy Process, which amounted to practically nothing. On foot of the government's decision to keeping Irish banks in business, the ECB feel compelled to co-operate by forwarding copious amounts of liquidity.

Who was in charge of the big european macroeconomic picture? It was not just Ireland which had a property bubble.

ei.sdraob

P. Breathnach wrote: »

Any concerns that they might have had were assuaged by the Central Bank, the Financial Regulator, the Irish establishment generally, the banks themselves, the Irish media.... [See Nyberg Report].

Ah yes parties who have been absolved of any responsibility by the so called "groupthink"

That still doesnt answe the question, who is in charge of the big eurozone picture?

later12

ei.sdraob wrote: »

Aha so they know these banks are bankrupt and without their ECB support insolvent! :rolleyes:

Of course. Save me the bold print and the emoticons, please, I presume neither of us are 12. A few minutes ago you were arguing that the ECB had to do this, now you are equally indignant when you decide that they are not.

Which raises the question as to why these banks are not being wound down with creditors loosing out in an orderly fashion, oh wait closing the banks would mean bondholders would loose out! we cant have that now can we

The Irish Government and perhaps the EU heads of government are the people who have sole remit over that right now - not the ECB. The ECB has a technical jurisdiction over monetary policy, it does not get to decide this. If you're suggesting otherwise, I presume you're going to post something with which to corroborate it.

And worse them not providing the support they are required to provide would create a bank run, the very thing they want to avoid and have to prevent, oh what a conundrum the ECB have on their hands does that give them the right to try to push a government (however bad!) out of power and tell all the taxpayers that its their problem

The ECB did not put the government out of power.

Furthermore, can you please stope referring to LBS as the ECB. He is one executibe board member with what I would call perfectly reasonable views on the Irish crisis, nevertheless some other board members have publicised views which would appear quite at odds with his. In short *he is not the ECB*.

Is it not their job to act as lender of last resort?

No. The respective national central bank is a lender of last resort; not the ECB. ELA is not the same thing as borrowing to the last resort, you should look these up for your own personal gain. Again, the ECB have discretion over ELA.

Amhran Nua

the European Central Bank fostered a run on Irish banks to force the last Government to seek a bailout

That's a fairly serious allegation from a fairly reputable source there. Is it paranoia or the thunder of pennies dropping all over the country?

P. Breathnach wrote: »

Any concerns that they might have had were assuaged by the Central Bank, the Financial Regulator, the Irish establishment generally, the banks themselves, the Irish media.... [See Nyberg Report].

One oddity about the property bubble in Ireland though - there was very, very little foreign investment in Irish property markets throughout. Are we to assume that the body of international property investors had access to better information than the European Central Bank? Regardless of assurances from officialdom and the fourth estate, the bald fact that Ireland was going through a standard issue property bubble with a standard issue conclusion was recognised by many.

ei.sdraob wrote:

Which raises the question as to why these banks are not being wound down with creditors loosing out in an orderly fashion, oh wait closing the banks would mean bondholders would loose out! we cant have that now can we

Interesting sidebar, just before taking on the leadership of the ECB who by all indications are in charge at the moment, Trichet was implicated in the money laundering scandal at Crédit Lyonnais, along with eight others. That's not to say that those in elevated financial stratospheres circled the wagons then or are doing so now, but it does appear there is a conflict of interest given the ECB's new roles.

ei.sdraob

@later10

I realise you are not 12, tho some posters here on this forum (you know who you are) are still insisting that the Irish banks:
are "fine"
and "nothing to worry about move along"
and "thou have to believe in the the infallible guarantee!"


You, me, ECB, everyone knows that the Irish banks are bankrupt and without ECB support insolvent, the State being attached at the hip to the banks (thanks to Lenny himself of course) is already burdened with separate fiscal deficit problem is also "buggered".

It seems at some stage the ECB decided to take the matter into its own hands and has overstepped its bounds. By pushing the government out of the way by using the media, this then triggering an election.

By trying to force events so the banks and deficit are resolved faster (not that there is anything wrong with these being resoved faster!) the ECB is seriously oversteping its role

You called me "paranoid" towards the ECB earlier, but all I did was quote Colm Mc Carthys opinion, are you calling him "paranoid" now too?

later12

ei.sdraob wrote: »

@later10

I realise you are not 12, tho some posters here on this forum (you know who you are) are still insisting that the Irish banks:
are "fine"
and "nothing to worry about move along"
and "thou have to believe in the the infallible guarantee!"


You, me, ECB, everyone knows that the Irish banks are bankrupt and without ECB support insolvent, the State being attached at the hip to the banks (thanks to Lenny himself of course) is already burdened with separate fiscal deficit problem is also "buggered".

Agreed up until that point.

It seems at some stage the ECB decided to take the matter into its own hands and has overstepped its bounds.

I think it is certain that the ECB took matters into its own hands to some extent, i.e. pressuring the Irish Government to take a bailout. But the ECB is an independent institution and it is entitled to encourage the Government to do so. Particularly so when the motivation behind that encouragement is to promote a stable (note: not necessarily a strong) currency, this typically being in Ireland's best interests as well as the best interests of the Eurozone.

Now the serious issue arises, in my opinion, when someone suggests that the ECB were deliberately harming the Irish banking system in press briefings, even if ECB spokesmen would argue that they were only doing this with plentiful honesty. Doing so would constitute a move to deliberately force the state into the crisis mechanism process, possibly against its own wishes.

This issue is so serious that we ought not simply take Lenihan's word for it. Most people wouldn't believe him if he said black were white, so I don't see why he has suddenly gained credibility now - he has more to gain from this than anyone else. I agree with Colm McCarthy that the relevant minutes and correspondence should be made available.

Amhran Nua

later10 wrote: »

This issue is so serious that we ought not simply take Lenihan's word for it. Most people wouldn't believe him if he said black were white, so I don't see why he has suddenly gained credibility now - he has more to gain from this than anyone else. I agree with Colm McCarthy that the relevant minutes and correspondence should be made available.

I find it hard to believe that he acted with malice aforethought though, Lenihan was a man completely inadequate to his role, a product of a political system that does not encourage competency on the national level; the interview seemed to be more him discussing his inadequacies.

I do agree that we're getting into criminal activity/institutional breakup territory though, the fallout will in all likelihood be significant. Actively attempting to cause a run on a nation's banks cannot be justified in the name of bettering the position of the Eurozone. There is also to my mind a large question mark over the exact motivations for doing so, if that is indeed what happened.

Scofflaw

ei.sdraob wrote: »

Why is it being uncomfortable about doing its job!

Where were their "concerns" when the likes of Anglo where growing exponentially, and money flowing into the country and property assets where inflating by double digit amounts year on year?

The ECB is not a lender of last resort - that function is carried out by the constituent national central banks, not the ECB. Nor is the ECB a bank regulator - that function is carried out by the constituent central banks or by national financial regulators.

That the ECB is acting as a lender of last resort during this crisis is something outside its proper remit, and potentially jeopardises its actual remit, which is maintaining price stability in the eurozone.

Quite possibly the ECB should have the functions you inist on ascribing to it - the crisis demonstrates that they're probably necessary - but the fact remains that it doesn't have those functions, and didn't have those functions in the run-up to the crisis.

cordially,
Scofflaw

Scofflaw

It's hard to better the summary in Emmet Oliver's Indo article:

Lenihan's view

Ireland was "bounced" into taking an EU/IMF bailout by the ECB.

The reality

Ireland's borrowing costs were rising to unsustainable levels long before the rescue, hitting 8.41pc on November 23 when the EU Commission started talking about the package Ireland might need. Deposits at Bank of Ireland and AIB fell by a combined €22bn between June and November. Irish banks couldn't raise external funding and without ECB help a full "bank run" might have taken place.

Lenihan's view

The major "force of pressure" for a bailout came from the ECB.

The reality

The markets themselves were discussing a bailout throughout the second half of 2010, particularly after Ireland cancelled all bond auctions in October. One of Europe's biggest banks, Barclays, was saying in September Ireland might need to call in the IMF/EU.

Lenihan's view

The ECB was involved in the "betrayal" of Ireland and the Government.

The reality

In fact, the Irish banking system was under serious pressure long before the bailout, with international depositors pulling €10bn out of Irish banks in October. Irish banks had to get funding from the ECB to replace much of these deposits. Deposits in Irish banks also fell by 6.7pc in November.

Lenihan's view

The EU Commission was relaxed about Ireland, but the ECB wanted Ireland "nailed down".

The reality

Overall the ECB was, by November 12, 2010, lending Irish-based banks a total of €130bn. In October and November it also bought Irish bonds on the secondary market trying to bring down Ireland's borrowing costs. ECB president Jean-Claude Trichet also publicly backed the Government's €15bn four-year plan.

cordially,
Scofflaw

later12

Amhran Nua wrote: »

I find it hard to believe that he acted with malice aforethought though

Lenihan? Not in his actions, but I wouldn't be at all suprised if, in the interview with Dan O'Brien, he exaggerated the ECB's force. However, it cannot be ruled out, in many ways it makes sense that they would have acted in this way, albeit completely unacceptable and not to be taken lightly if true. But it must be shown to be true, or has confidence been restored in Lenihan now?

I do agree that we're getting into criminal activity/institutional breakup territory though,

I don't think we're anywhere close to either, actually. The ECB may have deliberately acted outside its remit, and interefered in an unaccetpable fashion that impaired Ireland's ability to determine its own economic sovereignty. But to allege criminal malice or a break up of institutions is pushing it a bit.

ei.sdraob

Scofflaw wrote: »

The ECB is not a lender of last resort - that function is carried out by the constituent national central banks, not the ECB. Nor is the ECB a bank regulator - that function is carried out by the constituent central banks or by national financial regulators.

That the ECB is acting as a lender of last resort during this crisis is something outside its proper remit, and potentially jeopardises its actual remit, which is maintaining price stability in the eurozone.

Quite possibly the ECB should have the functions you inist on ascribing to it - the crisis demonstrates that they're probably necessary - but the fact remains that it doesn't have those functions, and didn't have those functions in the run-up to the crisis.

cordially,
Scofflaw

Have you not got the memo. Our regulator has been absolved of any blame since they commited no crime but only engaged in "groupthink" :rolleyes:

If there is no lender of last resort in the eurozone, BUT the banks have to be kept open at all costs and the bondholders can not under any circumstances make a loss. Then we are all trully fubared.

The ECB insists that no bondholders are "hurt" yet does not want to support the same insolvent banks, trying to push the "responsibility" on taxpayers who are already burdened with deficit debts.

I am sorry but this whole thing will just endup badly unless the ECB gets its act together.

Oh and here is this gem from Trichet

Trichet wrote:

In answer to your second question, I will only say that we are responsible for ensuring price stability for 331 million people, and all the decisions that we have taken since the very beginning of the euro, including today’s, have been designed to deliver price stability to 331 million people.

So the ECB are responsible for price stability as per his own words, then why are they not responsible for out of control inflation that occured in Ireland, Spain etc? The ECB cant have it both ways.

later12

Scofflaw wrote: »

It's hard to better the summary in Emmet Oliver's Indo article:



cordially,
Scofflaw

In fairness, this

The major "force of pressure" for a bailout came from the ECB.

The reality

The markets themselves were discussing a bailout throughout the second half of 2010, particularly after Ireland cancelled all bond auctions in October. One of Europe's biggest banks, Barclays, was saying in September Ireland might need to call in the IMF/EU.

is a pretty weak rejection. That Ireland was almost certainly bound for the crisis mechanism is immaterial. The question is whether this extreme likelihood (a) became inevitable on foot of ECB press briefings or (b) was brought forward against the wishes of the Irish Government, acting to fight what may have been inflammatory musings by the European Central Bank in a move to lure Ireland into the bailout process far sooner than it needed to enter that process.

The obvious point here is the possibility that Ireland would only be negotiating a bailout this month or next month, with Portugal, if what Mr Lenihan alleges happened had taken another course and the ECB maintained silence. To be negotiating with a fellow Eurozone member, or to have had an extra five months or so with market uncertainty with regard to the Euro, could have changed the Irish hand in negotiating a bailout and, perhaps, a bank wind-down enormously. This allegation is a rather serious one and deserves a proper explanation.

later12

ei.sdraob wrote: »

If there is no lender of last resort in the eurozone, BUT the banks have to be kept open at all costs and the bondholders can not under any circumstances make a loss. Then we are all trully fubared.

Where is the condition that banks remain opened in the MoU? It was an Irish government decision, not an EU one, and certainly not an ECB one. I imagine they were more horrified than anyone after the September guarantee of 2008, for example.

So the ECB are responsible for price stability as per his own words, then why are they not responsible for out of control inflation that occured in Ireland, Spain etc? The ECB cant have it both ways.

They have to look at eurozone inflation as a whole and keep it at target for the mean; that includes inflation in places like Germany and finland which was often below target while we were above target. The system is not perfect but that's the Euro, it doesn't always make sense.

Amhran Nua

later10 wrote: »

The ECB may have deliberately acted outside its remit, and interefered in an unaccetpable fashion that impaired Ireland's ability to determine its own economic sovereignty.

Its not some minor misdemeanour we're talking about here though, it's a concerted effort to cause full blown runs on banks. Time will tell, I suppose, we'll find out the truth over the coming weeks, if we can dig it out from the depths of the spin from both sides, and the consequences will follow.

ei.sdraob

later10 wrote: »

Where is the condition that banks remain opened in the MoU? It was an Irish government decision, not an EU one, and certainly not an ECB one. I imagine they were more horrified than anyone after the September guarantee of 2008, for example.

Of course they where horrified, but when it became clear that the banks are bankrupt then why keep insisiting that no bondholders are hurt?

The ECB in Frankfurt was “solidly opposed” to imposing losses on investors in senior bank debt, Finance Minister Michael Noonan told broadcaster RTE today.

The ECB dont want any losses on investors (why?) yet are "concerned" about keeping the banks that could impose losses on investors running. They are the only party who can keep these banks open.

later10 wrote: »

They have to look at eurozone inflation as a whole and keep it at target for the mean; that includes inflation in places like Germany and finland which was often below target while we were above target. The system is not perfect but that's the Euro, it doesn't always make sense.

Last I checked Germany is only a fifth or so of the total Eurozon economy.
Like Trichet said "their responsibility is price stability for ALL 331 million people using the euro".
Obviously they have failed the Spanish and Irish people when it came to promising "price stability" first we have huge inflationary bubble followed by a deflationary spiral, but things are going smooth in Germany so everything is ok right? right??

Is the instituition in question called the European Central Bank or the German Central Bank?

later12

ei.sdraob wrote: »

The ECB dont want any losses on investors (why?)

Stability in the European banking system, of course. Not to mention the fact that the senior bondholders would inevitably sue the state, and why should they not win given their legal status, or right, to share losses with depositors?

Last I checked Germany is only a fifth or so of the total Eurozon economy.

Not sure what you mean by ''only a fifth'' - It's actually more than that, an enormous 26% of Eurozone GDP, and by far the biggest in the bloc.
MUICP is beyond the remit of the ECB, its design is from the European Council, the ECB are simply charged with implementing it and adhering to the inflation target for the Eurozone as one whole entity, not the individual pieces.