Anglo irish bank simple question

Nick Guats

If the government did refuse to give another red cent to anglo irish bank what would happen ?

FreudianSlippers

To put it in quite simple terms, this is what the ECB is afraid will happen:

Senior bondholders take a loss - now say 50% of these bondholders are other EZ banks - those banks then get into difficulty and their senior bondholders take a loss, 50% of them may be other EZ banks including our own, and it keeps happening until all EZ banks are royally fücked! This is what the ECB has termed “contagion” and is what they are trying to prevent.

Now, the other 50% of those senior bondholders who aren't EZ banks are also buying bonds in the other EZ member states. They will not be happy at the loss and will not accept a loss. In order to get their money back they will demand higher interest rates on their bond buying in the other member states to compensate for increased risk of non-repayment and further loss.

Then we face an entirely separate problem: The ECB will not allow us to impose losses because of the above. It would seem, though, that there is no guarantee in the Memorandum of Understanding that we must repay bondholders but we need the money from the ECB/EU arm(s) of the bailout. We could try to get all of our money from the IMF, and if we did leave the EZ/EU or got kicked out (which is an almost certainty will not happen) that may be our only option.


Why then? Why would we want to continue to repay the bondholders, screw the rest of Europe!

1. As it stands, the bondholders of all levels rank on the same level as depositors. What this means is that burning the bondholders means burning the depositors equally.
2. We own Anglo (the taxpayer), we are the biggest shareholder to the tune of about €30billion. If we, now, let Anglo become insolvent then we take the biggest hit (as shareholders). We cant afford to absorb that hit.
3. We sold valuable assets to AIB and transferred saleable assets that could have gone to repay bondholders - if the bank became insolvent then we may be guilty of crimes under the Conveyancing Act (Ireland) 1634. Fraudulent conveyance "occurs when a debtor transfers property without receiving "reasonably equivalent value" in exchange for the transfer if the debtor is insolvent at the time of the transfer or becomes insolvent or is left with unreasonably small capital to continue in business as a result of the transfer. Unlike the intentional fraudulent transfer, no intention to defraud is necessary."
4. We would be sued by other bondholders.

The long and short of it is burning bondholders is burning ourselves.


I think though that if the ECB really wants to prevent this contagion from spreading, they should be chipping in to pay for the funding of Anglo or else give us the money to bail out Anglo at a 0% interest rate.

Good loser

A simple (or simplistic?) solution for the ECB would be to raise the interest rates on the short term lending it has given to the Irish banks and the central bank to generate funds to pay the bondholders in full i.e. they could compensate for our default - with our money.

Incidentally while many complain about the high interest rates on the promissory notes the highest rates I'm aware of are the c. 10.5% charged by the Irish Govt to the banks for the bank guarantee; I believe this guarantee is costing BOI alone €470 m this year.

gerryo777

FreudianSlippers wrote: »

To put it in quite simple terms, this is what the ECB is afraid will happen:

Senior bondholders take a loss - now say 50% of these bondholders are other EZ banks - those banks then get into difficulty and their senior bondholders take a loss, 50% of them may be other EZ banks including our own, and it keeps happening until all EZ banks are royally fücked! This is what the ECB has termed “contagion” and is what they are trying to prevent.

Now, the other 50% of those senior bondholders who aren't EZ banks are also buying bonds in the other EZ member states. They will not be happy at the loss and will not accept a loss. In order to get their money back they will demand higher interest rates on their bond buying in the other member states to compensate for increased risk of non-repayment and further loss.

Then we face an entirely separate problem: The ECB will not allow us to impose losses because of the above. It would seem, though, that there is no guarantee in the Memorandum of Understanding that we must repay bondholders but we need the money from the ECB/EU arm(s) of the bailout. We could try to get all of our money from the IMF, and if we did leave the EZ/EU or got kicked out (which is an almost certainty will not happen) that may be our only option.


Why then? Why would we want to continue to repay the bondholders, screw the rest of Europe!

1. As it stands, the bondholders of all levels rank on the same level as depositors. What this means is that burning the bondholders means burning the depositors equally.
2. We own Anglo (the taxpayer), we are the biggest shareholder to the tune of about €30billion. If we, now, let Anglo become insolvent then we take the biggest hit (as shareholders). We cant afford to absorb that hit.
3. We sold valuable assets to AIB and transferred saleable assets that could have gone to repay bondholders - if the bank became insolvent then we may be guilty of crimes under the Conveyancing Act (Ireland) 1634. Fraudulent conveyance "occurs when a debtor transfers property without receiving "reasonably equivalent value" in exchange for the transfer if the debtor is insolvent at the time of the transfer or becomes insolvent or is left with unreasonably small capital to continue in business as a result of the transfer. Unlike the intentional fraudulent transfer, no intention to defraud is necessary."
4. We would be sued by other bondholders.

The long and short of it is burning bondholders is burning ourselves.


I think though that if the ECB really wants to prevent this contagion from spreading, they should be chipping in to pay for the funding of Anglo or else give us the money to bail out Anglo at a 0% interest rate.

What about these secondary unsecured bondholders? Surely we have no legal obligation to pay these?

Scofflaw

FreudianSlippers wrote: »

To put it in quite simple terms, this is what the ECB is afraid will happen:

Senior bondholders take a loss - now say 50% of these bondholders are other EZ banks - those banks then get into difficulty and their senior bondholders take a loss, 50% of them may be other EZ banks including our own, and it keeps happening until all EZ banks are royally fücked! This is what the ECB has termed “contagion” and is what they are trying to prevent.

Now, the other 50% of those senior bondholders who aren't EZ banks are also buying bonds in the other EZ member states. They will not be happy at the loss and will not accept a loss. In order to get their money back they will demand higher interest rates on their bond buying in the other member states to compensate for increased risk of non-repayment and further loss.

Then we face an entirely separate problem: The ECB will not allow us to impose losses because of the above. It would seem, though, that there is no guarantee in the Memorandum of Understanding that we must repay bondholders but we need the money from the ECB/EU arm(s) of the bailout. We could try to get all of our money from the IMF, and if we did leave the EZ/EU or got kicked out (which is an almost certainty will not happen) that may be our only option.

The "50% EZ bondholders" is the case in other countries, but not the case in Ireland. Our bondholders don't appear to be EZ banks, and that's not the contagion route the ECB appears concerned about, if that still is their concern. The eurozone banks could very easily take their losses on Irish covered bank bonds without any trouble, because they're next to nothing. For the same reasons, it would do us very little good.

However, this does appear to be the concern for the US, as you say.

FreudianSlippers wrote: »

Why then? Why would we want to continue to repay the bondholders, screw the rest of Europe!

1. As it stands, the bondholders of all levels rank on the same level as depositors. What this means is that burning the bondholders means burning the depositors equally.
2. We own Anglo (the taxpayer), we are the biggest shareholder to the tune of about €30billion. If we, now, let Anglo become insolvent then we take the biggest hit (as shareholders). We cant afford to absorb that hit.
3. We sold valuable assets to AIB and transferred saleable assets that could have gone to repay bondholders - if the bank became insolvent then we may be guilty of crimes under the Conveyancing Act (Ireland) 1634. Fraudulent conveyance "occurs when a debtor transfers property without receiving "reasonably equivalent value" in exchange for the transfer if the debtor is insolvent at the time of the transfer or becomes insolvent or is left with unreasonably small capital to continue in business as a result of the transfer. Unlike the intentional fraudulent transfer, no intention to defraud is necessary."
4. We would be sued by other bondholders.

The long and short of it is burning bondholders is burning ourselves.


I think though that if the ECB really wants to prevent this contagion from spreading, they should be chipping in to pay for the funding of Anglo or else give us the money to bail out Anglo at a 0% interest rate.

All of that leads back to the answer given by the ECB rep to Vincent Browne - and indeed to Boucher-Hayes from the IT, who also asked about the unsecured bonds, if in a rather less TV-friendly way:

Klaus Masuch, ECB: I can understand that this is a difficult decision to be made by the government and there’s no doubt about it but there are different aspects of the problem to be, to be balanced against each other and I can understand that the government came to, came to the view that, all in all, the costs for the, for Irish people, for the, for the stability of the banking system, for the confidence in the banking system of taking a certain action in this respect which you are mentioning could likely have been much bigger than the benefits for the taxpayer which of course would have been there. So the financial sector would have been affected; the confidence of the financial sector would have been negatively affected, and I can understand that there were, that there was a difficult decision but that the decision was taken in this direction.”

As far as I can see there, he's saying this was/is (?) a government decision. And in response to Boucher-Hayes:

Boucher-Hayes, IT: I'd like to get an understanding of the position in the Memorandum of Understanding on unsecured senior bonds. What would be the impact if Ireland reneged?

IMF: There is no change in the IMF position. Liability management exercises on subordinated debt have been valuable - about €15bn reduction. Liability management on senior debt is also an option during bank resolution.

ECB: The issue is not addressed in the MoU. Impact? There is a risk to the Irish financial sector, which could be very costly. The risks involved are significant.

So I'm not sure the ECB and the government are actually on different sides of the table here, for a start.

A second point is that the ECB has provided 0% interest money for the Anglo bailout. The €30bn in promissory notes used to bail Anglo out have interest, but it is interest payable by the government to Anglo (or IBRC as it now is), and payable in turn by Anglo to the Irish Central Bank, which is again part of the State. The interest is not payable to the ECB.

cordially,
Scofflaw

later12

Scofflaw has already responsed to the issue of where the bank debt lies, but...

FreudianSlippers wrote: »

[*]As it stands, the bondholders of all levels rank on the same level as depositors. What this means is that burning the bondholders means burning the depositors equally.

Anglo Irish Bank has no depositors.

Furthermore, last year a number of banks put out circulars stating that they believed peripheral governments would distinguish between viable and nonviable financials in their treatment of of senior unsecured debt. This suggests banks may already have priced in a credit event on Anglo debt in relation to its effects upon the Irish banking system (although possibly not the periphery).

And if it didn't price it in then, it should have priced it in when Michael Noonan claimed that he would force senior unsecured debt at Anglo to be written down. Thereupon, the world did not implode.

[*]We own Anglo (the taxpayer), we are the biggest shareholder to the tune of about €30billion. If we, now, let Anglo become insolvent then we take the biggest hit (as shareholders). We cant afford to absorb that hit.

Anglo is already being wound down.

[*]We sold valuable assets to AIB and transferred saleable assets that could have gone to repay bondholders - if the bank became insolvent then we may be guilty of crimes under the Conveyancing Act (Ireland) 1634. Fraudulent conveyance "occurs when a debtor transfers property without receiving "reasonably equivalent value" in exchange for the transfer if the debtor is insolvent at the time of the transfer or becomes insolvent or is left with unreasonably small capital to continue in business as a result of the transfer. Unlike the intentional fraudulent transfer, no intention to defraud is necessary."
[*]We would be sued by other bondholders.
[/LIST]

That Act cannot be used to address any such disputes that occured within the last 3 years, it having been replaced that long ago.

later12

Just in relation to the above; I ought to have said I'm not saying that we should necessarily allow a credit event to occur on the debt in question. However, since it appears to be of dubious benefit to the Irish banking system to disallow such an event, and it is potentially far more profitable to the European banking system and the Spanish cajas in particular, then perhaps the Irish government ought not be the guy stepping in to offer protection, or at least not to the extent that it is doing so.

Scofflaw

later10 wrote: »

Scofflaw has already responsed to the issue of where the bank debt lies, but...

Anglo Irish Bank has no depositors.

Furthermore, last year a number of banks put out circulars stating that they believed peripheral governments would distinguish between viable and nonviable financials in their treatment of of senior unsecured debt. This suggests banks may already have priced in a credit event on Anglo debt in relation to its effects upon the Irish banking system (although possibly not the periphery).

And if it didn't price it in then, it should have priced it in when Michael Noonan claimed that he would force senior unsecured debt at Anglo to be written down. Thereupon, the world did not implode.

Which, in turn, is something that makes me doubt the "contagion" argument. The only other argument for avoiding any haircuts is a purely Irish one, that it would reflect badly on the Irish financial sector.

later10 wrote: »

Anglo is already being wound down.

Is it? I know it has changed its name to the Irish Bank Resolution Corporation Limited, but as far as I can see it operates as a normal company, and retains a standard banking licence, both of which suggest that it is not in fact currently "in resolution". That you cannot make deposits or acquire loans is largely irrelevant - the company appears to be still in business, just not acquiring new customers.

cordially,
Scofflaw

FreudianSlippers

I should say that I was posting my understanding of the ECB's position, not my own position.

hatrickpatrick

gerryo777 wrote: »

What about these secondary unsecured bondholders? Surely we have no legal obligation to pay these?

Bumping this one since no one has seen it:
In my own cynical opinion we are bailing them out because they are all part of the political elite and it's a simple case of friends helping out friends.
The entire system is designed to benefit those in such positions. Any benefits or hardships this causes to the ordinary man or woman are merely irrelevant side effects as far as those in power are concerned.

To quote Father Fintan Stack from Father Ted: "If you don't like it, tough. I've had my fun, and that's all that matters." :mad:

FreudianSlippers

gerryo777 wrote: »

What about these secondary unsecured bondholders? Surely we have no legal obligation to pay these?

I would agree. However, without knowing who these unsecured bondholders are it's difficult to say what the vested interests are.

later12

Scofflaw wrote: »

Which, in turn, is something that makes me doubt the "contagion" argument. The only other argument for avoiding any haircuts is a purely Irish one, that it would reflect badly on the Irish financial sector.

There have already been a number of ISDA credit events in the Irish banking system - they were so unremarkable that most people, if you ask them, probably don't recall that they have occurred.

The only material difference here is the ranking of the debt. But there is no difficulty in writing down senior unsecured debt per se, as long as you also write down the other senior unsecured debt - typically depositors.



Now look at the above chart and you'll see that up until recently, investors have been pricing in a substantial discount to the relevant senior unsecured debt at Anglo. The bearing of this discount on other institutions is never something that anybody has seriously attempted to correlate with fluctuations elsewhere in the Irish banking system nor the European banking system to any significant degree: to give an example, BKIR has actually had its stock price diminish as the Anglo bond value increased over the past 12 months, not the other way around.

And support for enforced write downs of this particular Irish bank debt by both the IMF and Timothy Geithner on behalf of the US Treasury galvanizes
the reality of the situation.
http://www.rte.ie/news/2011/0615/anglo-business.html

I really do not know the extent to which a credit event on senior unsecured debt would impact upon foreign peripheral banking institutions such as the cajas, but that's not really the responsibility of the Irish Government..

So to recap: Anglo debt trading as low as at a 40% discount with European banks acknowledging the reality of senior debt in nonviable banks, support of the IMF and UST for write downs, and no legal hazards from depositors. There is an overwhelming indication that there would have bene no significant structural consequences to undertaking a write down of the Anglo debt - except from the corner of the ECB, who have either said nothing at all in public, or have given inadequate and irrelevant explanations as to why they want it paid.

I have no inherent objection to the money being paid in itself, but not under the pretence that we have evidence that this will sustain the Irish banking system.

Is it? I know it has changed its name to the Irish Bank Resolution Corporation Limited, but as far as I can see it operates as a normal company, and retains a standard banking licence, both of which suggest that it is not in fact currently "in resolution".

That's a strange place to insert inverted commas since I'm not suggesting there is a resolution of the bank. I'm saying it is being wound down in the sense that the bank is no longer taking deposits or extending credit, but merely pulling in the rest of its loan assets before it goes into that good night. The expression has been used extensively, including by its own chairman. If you want me to dig up quotes on that, I don't mind, but I'm sure you know where google is.

juan.kerr

So why are they trying to force loses on private lenders to Greece?

Scofflaw

later10 wrote: »

There have already been a number of ISDA credit events in the Irish banking system - they were so unremarkable that most people, if you ask them, probably don't recall that they have occurred.

The only material difference here is the ranking of the debt. But there is no difficulty in writing down senior unsecured debt per se, as long as you also write down the other senior unsecured debt - typically depositors.



Now look at the above chart and you'll see that up until recently, investors have been pricing in a substantial discount to the relevant senior unsecured debt at Anglo. The bearing of this discount on other institutions is never something that anybody has seriously attempted to correlate with fluctuations elsewhere in the Irish banking system nor the European banking system to any significant degree: to give an example, BKIR has actually had its stock price diminish as the Anglo bond value increased over the past 12 months, not the other way around.

And support for enforced write downs of this particular Irish bank debt by both the IMF and Timothy Geithner on behalf of the US Treasury galvanizes
the reality of the situation.
http://www.rte.ie/news/2011/0615/anglo-business.html

There's no support by Geithner for writedowns suggested in the article. He supported the idea of asking for lower interest rates.

later10 wrote: »

I really do not know the extent to which a credit event on senior unsecured debt would impact upon foreign peripheral banking institutions such as the cajas, but that's not really the responsibility of the Irish Government..

Except, presumably, as a eurozone government.

later10 wrote: »

So to recap: Anglo debt trading as low as at a 40% discount with European banks acknowledging the reality of senior debt in nonviable banks, support of the IMF and UST for write downs, and no legal hazards from depositors. There is an overwhelming indication that there would have bene no significant structural consequences to undertaking a write down of the Anglo debt - except from the corner of the ECB, who have either said nothing at all in public, or have given inadequate and irrelevant explanations as to why they want it paid.

I have no inherent objection to the money being paid in itself, but not under the pretence that we have evidence that this will sustain the Irish banking system.

Except that what you've said there is that the ECB have "either said nothing at all in public, or have given inadequate and irrelevant explanations as to why they want it paid", but that despite them not having said it, you ascribe to them the view that there are "significant structural consequences to undertaking a write down of the Anglo debt"?

That doesn't make sense, because there's nothing at all stopping the ECB from stating the view quite clearly that there would be "significant structural consequences to undertaking a write down of the Anglo debt" if that's what they believe. They're not up for re-election, they have no particular duty to the Irish people, it's a viewpoint that would have no effect on the markets, and they're already being blamed for it. So why are we lacking a clear statement by the ECB of the position that everyone ascribes to the ECB? Surely not because it is not their position?

later10 wrote: »

That's a strange place to insert inverted commas since I'm not suggesting there is a resolution of the bank. I'm saying it is being wound down in the sense that the bank is no longer taking deposits or extending credit, but merely pulling in the rest of its loan assets before it goes into that good night. The expression has been used extensively, including by its own chairman. If you want me to dig up quotes on that, I don't mind, but I'm sure you know where google is.

No, I'm perfectly happy with "being wound down", because that accurately describes the situation. However, Anglo is not in resolution, which means that it needs to continue to be solvent - that's the difference I'm highlighting.

cordially,
Scofflaw

later12

Scofflaw wrote: »

There's no support by Geithner for writedowns suggested in the article. He supported the idea of asking for lower interest rates.

Ok - that was covered elsewhere.
http://ftalphaville.ft.com/blog/2011/06/16/596176/the-lesser-spotted-variegated-burdensharing-for-senior-bondholders/

Anyway, there are still massive hurdles to overcome before any such burdensharing in Ireland.

For a start, as far as we know the European Central Bank still opposes the idea — though Noonan mentioned that the IMF and US Treasury secretary Tim Geithner are now on his side.

__________________

Except, presumably, as a eurozone government.

Oh I've no problem with the Eurozone governments taking it upon themselves to save the Eurozone banking system - I do, however, have a problem with one individual EA government arbitrarily taking it upon their jurisdiction to fight the dragon, at significant and exclusive cost to and within itself.

Except that what you've said there is that the ECB have "either said nothing at all in public, or have given inadequate and irrelevant explanations as to why they want it paid", but that despite them not having said it, you ascribe to them the view that there are "significant structural consequences to undertaking a write down of the Anglo debt"?

That doesn't make sense, because there's nothing at all stopping the ECB from stating the view quite clearly that there would be "significant structural consequences to undertaking a write down of the Anglo debt" if that's what they believe.

I think you're misunderstanding what I said. The "inadequate and irrelevant" explanation was the significant structural consequence that the ECB have been harking on about,which is irrelevant. The reasons why it is irrelevant, or appears to be so, I have already stated..

The nothing was the nothing that the ECB has said which is of relevance to Ireland in itself in terms of honouring Anglo's 2007 senior unsecured debt.

They're not up for re-election, they have no particular duty to the Irish people, it's a viewpoint that would have no effect on the markets, and they're already being blamed for it. So why are we lacking a clear statement by the ECB of the position that everyone ascribes to the ECB?

You are quite right in that Ireland is not the ECB's constituency, but political decisions here do influence that which does come at some point under their remit: financial stability.

If the ECB publicly acknowledges that Ireland's already battered financial system is not in further and significant danger from write downs on senior unsecured, unguaranteed debt in a nonviable bank, then writing-down that debt becomes politically unavoidable. There is no way a Government could thereafter extend domestic, public money to IBRC in order to honour that obligation.

I am sure the ECB is of the opinion that a credit event on senior debt in an Irish bank could damage peripheral banks in foreign countries where the likelihood of a default contagion may be less likely to have been priced in than in Ireland. That may be the case. Maybe there is a contagion element to worry about here, but that is the concern of either the ECB or the EA governments acting collectively.

There is no evidence to suggest that there is (or rather, would have been) any threat to the Irish banking system had this debt been written down, ideally in the first half of 2011.

Scofflaw

You are quite right in that Ireland is not the ECB's constituency, but political decisions here do influence that which does come at some point under their remit: financial stability.

If the ECB publicly acknowledges that Ireland's already battered financial system is not in further and significant danger from write downs on senior unsecured, unguaranteed debt in a nonviable bank, then writing-down that debt becomes politically unavoidable. There is no way a Government could thereafter extend domestic, public money to IBRC in order to honour that obligation.

Sure - so if the ECB made a clear statement that they saw no particular problems arising on their turf, the ball would suddenly and firmly be in the government's court. And that's a reason for not saying it if the government doesn't want that said - if the government's preference is to pay the debt, then they will, for the reasons you gave above, prefer that the ECB not say the debt could be written down.

I am sure the ECB is of the opinion that a credit event on senior debt in an Irish bank could damage peripheral banks in foreign countries where the likelihood of a default contagion may be less likely to have been priced in than in Ireland. That may be the case. Maybe there is a contagion element to worry about here, but that is the concern of either the ECB or the EA governments acting collectively.

There is no evidence to suggest that there is (or rather, would have been) any threat to the Irish banking system had this debt been written down, ideally in the first half of 2011.

Indeed, and there's no direct evidence that the ECB is of the view that it would cause trouble now. I'm not saying it's not their view, but I'm increasingly puzzled by the lack of a straightforward statement by the ECB that it is their view. As I said, I can't see what's stopping them, and there have been plenty of occasions for them to do so - indeed, occasions like last Thursday, when they have been directly challenged to do so.

After all, if the concern is contagion in other peripheral banks, a definite statement is surely preferable to uncertainty?

cordially,
Scofflaw

later12

Scofflaw wrote: »

Sure - so if the ECB made a clear statement that they saw no particular problems arising on their turf, the ball would suddenly and firmly be in the government's court. And that's a reason for not saying it

Indeed, and there's no direct evidence that the ECB is of the view that it would cause trouble now.

Yes, there is.
http://www.thejournal.ie/imf-and-ecb-divided-on-whether-ireland-should-burn-bondholders-332069-Jan2012/

Speaking at a press conference in Dublin today the IMF’s mission director to Ireland, Craig Beaumont, said the IMF had no objection to Ireland enforcing losses on the senior unsecured bondholders of its banks.

The European Central Bank, however, expressed reservations about the move – conceding that while the terms of the EU-IMF deal did not require Ireland to repay all bonds, doing so could cause financial panic to “spill over” to other countries.

My point is that in cases like this, where the ECB have spoken they have either given irrelevant or inadequate explanations. The references to Ireland's banks' financial health is irrelevant, since the funding for their senior debt obligations has effectively been secured; the issue of spillover is inadequate: the notion that one EA government should assume the liability of contagion inhibition for benefit of others, acting unilaterally in this specific endeavour, is logically bankrupt.

Scofflaw

later10 wrote: »

Yes, there is.
http://www.thejournal.ie/imf-and-ecb-divided-on-whether-ireland-should-burn-bondholders-332069-Jan2012/

No, I'm afraid there isn't. That's poor reporting, where what was actually said has been squeezed into the pre-existing narrative of "European contagion".

This is what Masuch actually said in response to the question about reneging on the Anglo bonds:

You mentioned the Memorandum of Understanding. I don't think this issue is addressed there. Erm. And you are asking for consequences or the impact this could have and I have already said that there is of course a risk that er there are spillovers into the Irish financial sector in general, into the credibility, or, er, the confidence er about Ireland, which could be very costly. Nobody can 100% be 100% sure how this er this risks will materialise but but there are significant risks for Ireland.

@c. 45 mins: http://www.imf.org/external/mmedia/view.aspx?vid=1402374718001

That is most definitely not a statement that the ECB sees the issue as contagion outside Ireland. There is, in fact, no mention of any spillover outside Ireland at all. Nor was there in his earlier answer to Vincent Browne.

later10 wrote: »

My point is that in cases like this, where the ECB have spoken they have either given irrelevant or inadequate explanations. The references to Ireland's banks' financial health is irrelevant, since the funding for their senior debt obligations has effectively been secured; the issue of spillover is inadequate: the notion that one EA government should assume the liability of contagion inhibition for benefit of others, acting unilaterally in this specific endeavour, is logically bankrupt.

And my point is that it's an assumption that this is what the ECB's position is, unbacked still by any clear statement. The ECB representative on the troika has, on the contrary, stated that it's a problem for Ireland, and a decision of the Irish government.

And that, in turn, is I think the origin of the Varadkar "bomb" remarks, because eventually the ECB may be sufficiently clear even for the rather narrative-bound Irish media, so the government needs to set up another line of explanation for why these bonds are being paid.

cordially,
Scofflaw

later12

Scofflaw wrote: »

And my point is that it's an assumption that this is what the ECB's position is, unbacked still by any clear statement. The ECB representative on the troika has, on the contrary, stated that it's a problem for Ireland, and a decision of the Irish government.

But there's simply no evidence for this. Without wanting to repeat myself, all the most recent evidence suggests a stoic resilience within the Irish banking system to fluctuations in the value of Anglo debt - senior or otherwise.

Last June, when Noonan said he would force write downs and the Anglo bond values fell, and senior Anglo debt priced in a discount of about 35c, the Iseq didn't even blink. Bank of Ireland floated along like a dead dog. BNP and Citi put out notes essentially saying "thought so,non viable, new norm, etc.".

On the other hand...
http://www.ft.com/intl/cms/s/0/df5307ac-981c-11e0-85e9-00144feab49a.html#axzz1kHTSO1JB

Michael Noonan, the finance minister, had appeared on Wednesday to signal a hardening of Dublin’s approach by announcing plans to seek so-called “haircuts” on €3.5bn of senior bonds at Anglo Irish Bank and Irish Nationwide Building Society, the two state-owned institutions being wound down.

Mr Noonan’s remarks sent measures of European bank risk spiking to their highest level since January.

So there is a serious and a profound credibility issue with the suggestion that the Irish senior debt in the "viable" banks is vulnerable to write-downs. The reason, of course, is that those "viable" banks operate outside of traditional funding arrangements. Unlike senior debt in the periphery, their senior debt obligations are effectively dealt with.

If there's one European institution that is more useful than a one legged man at an arse kicking competition, it's the ECB. What's so unique about the ECB is that it's full of people who know what they are doing. And it is simply incredible to suggest that its leadership see a problem for the Irish banking system, and not the senior spanish or Italian bank debt, in the event of setting a precedent of writing down senior (unsecured) Anglo paper.

Protecting the Irish banking industry from a market backlash is the logical equivalent of administering an anaesthetic to a corpse. The possible danger here is the precedent that this would set for the peripheral banking systems, and financial stability in the EA. I don't know the extent to which that's likely, but at least it is logically plausible.

It's too late now anyway, because the last appealing time to buy back or write down Anglo paper was 6 to 12 months ago. All that remains is a PR exercise. And sending a monkey like Leo Varadkar out to warn the public about steeper ESB bills if Anglo were to be written down is almost comedy, but it might work. If you want to buy it, go right ahead. I have some magic beans you might be interested in.

Scofflaw

later10 wrote: »

But there's simply no evidence for this. Without wanting to repeat myself, all the most recent evidence suggests a stoic resilience within the Irish banking system to fluctuations in the value of Anglo debt - senior or otherwise.

Last June, when Noonan said he would force write downs and the Anglo bond values fell, and senior Anglo debt priced in a discount of about 35c, the Iseq didn't even blink. Bank of Ireland floated along like a dead dog. BNP and Citi put out notes essentially saying "thought so,non viable, new norm, etc.". So there is a serious and a profound credibility issue with the suggestion that the Irish senior debt in the "viable" banks is vulnerable to write-downs. The reason, of course, is that those "viable" banks operate outside of traditional funding arrangements. Their senior debt obligations are effectively dealt with.

If there's one European institution that is more useful than a one legged man at an arse kicking competition, it's the ECB. What's so unique about the ECB is that it's full of people who know what they are doing. And it is simply incredible to suggest that its leadership see a problem for the Irish banking system, and not the senior spanish or Italian bank debt, in the event of setting a precedent of writing down senior (unsecured) Anglo paper.

Protecting the Irish banking industry from a market backlash is the logical equivalent of administering an anaesthetic to a corpse. The possible danger here is the precedent that this would set for the peripheral banking systems, and financial stability in the EA. I don't know the extent to which that's likely, but at least it is logically plausible.

It's too late now anyway, because the last appealing time to buy back or write down Anglo paper was 6 to 12 months ago. All that remains is a PR exercise. And sending a monkey like Leo Varadkar out to warn the public about steeper ESB bills if Anglo were to be written down is almost comedy, but it might work. If you want to buy it, go right ahead. I have some magic beans you might be interested in.

And still it makes absolutely no logical sense for the ECB not to simply say that they see potential contagion. Don't get me wrong - you should remember that I argued exactly the line you're taking for quite a while, and I accept its logical force, but the months, and indeed years, have gone by without any evidence for it. And there are other problems.

First, if there are no spillover effects to other Irish institutions because the markets have accepted Anglo as dead, or already priced in such writedowns, the very same argument surely applies to Spanish and Italian bank debt - more so if anything.

Second, the public utterances of the various parties do not ever point in the direction of European contagion as the issue - that seems, increasingly, to be a trope of the Irish media, just as in the article you cited earlier, where Masuch's remarks clearly did not say what the article portrayed him as saying. Instead, those public utterances point - and explicitly - to a decision by the Irish government.

Third, the IMF clearly do not see such writedowns as a problem - that doesn't mean the ECB does not, but of the two institutions, the IMF have the longer track record of being willing to impose logically tenable actions on reluctant governments than any EU institution.

So, while, as I say, I have always accepted the logical force of the argument - have argued it myself - I am concerned that it has become the accepted narrative without the evidence that should, by now, have accumulated to support it.

cordially,
Scofflaw

beeftotheheels

Scofflaw wrote: »

And still it makes absolutely no logical sense for the ECB not to simply say that they see potential contagion. Don't get me wrong - you should remember that I argued exactly the line you're taking for quite a while, and I accept its logical force, but the months, and indeed years, have gone by without any evidence for it. And there are other problems.

Oh but it does. For the ECB to actually answer this in a meaningful way they would need to point fingers. Fingers the market may or may not have already pointed but for the ECB to state outright that the issue is e.g. the Cajas would add to the pressure on those financials. I'm stuck between wanting the truth as an Irish taxpayer and assuming that daylight is not always the best disinfection in a crisis as I think I mentioned in relation to the EBA stress tests (and didn't they work out well for all involved).

Scofflaw wrote: »

First, if there are no spillover effects to other Irish institutions because the markets have accepted Anglo as dead, or already priced in such writedowns, the very same argument surely applies to Spanish and Italian bank debt - more so if anything.

We don't have the data. Yes, they're drawing heavily on the LTRO but there's some evidence that the US money market funds are starting to return to unsecured bank debt by French and Latin banks. It is a trickle but the ECB should be very concerned about shutting it off (although not necessarily forcing us to bear the risk).

http://www.ft.com/intl/cms/s/0/83f10e54-43c0-11e1-9f28-00144feab49a.html#axzz1jtMzo7r6

later12

Scofflaw wrote: »

And still it makes absolutely no logical sense for the ECB not to simply say that they see potential contagion.

Well it makes perfect sense.

If you were JC Trichet or Draghi, you would recognize that any (official) acknowledgement of the view that "this could be bad for the senior Caja debt", for example, would validate the Irish government's clear preference to impose losses on senior Anglo debt. Honouring the senior debt at home so as to protect contagion elsewhere is a political minefield.

It isn't the money the ECB is worried about, the figure is negligible by ECB standards. What matters is not setting the precedent of writing down senior paper in the EA. It has never been done. If it happened in the periphery, the consequences could be catastrophic.

By the way, I'm not saying that this is evidence that the Irish contagion issue isn't true, of course. This is just a reason why it's indeed possible.

The reasons why it's most likely untrue can be seen in how Irish indicators have reacted to Anglo events in recent history.

First, if there are no spillover effects to other Irish institutions because the markets have accepted Anglo as dead, or already priced in such writedowns, the very same argument surely applies to Spanish and Italian bank debt - more so if anything.

Not at all. The reason there isn't spillover isn't just because everyone knows Anglo is dead. It's also because everyone knows the Irish banking system is fully funded, and that its senior obligations are ready to be met in full.

Second, the public utterances of the various parties do not ever point in the direction of European contagion as the issue

I must admit I have been out of the loop on Irish politics lately, so I have no idea what they've been saying about it.

I think the present Irish government is quite a diplomatically intelligent one, and it understands that banging the table and throwing a strop is neither going to help its case with the ECB (e.g. on the issue of the promissory notes) and will probably only spark a mini outrage if they were to admit to "taking one for the team".

Third, the IMF clearly do not see such writedowns as a problem - that doesn't mean the ECB does not, but of the two institutions, the IMF have the longer track record of being willing to impose logically tenable actions on reluctant governments than any EU institution.

Yes but disagreement is perfectly reasonable here.

The inference that the ECB is worried about setting a dangerous precedent isn't built on the inherent danger of that precedent in itself, but rather by deducing that there is no other alternative component which the ECB might perceive, which carries the same sort of weight.

Look at the Irish financial indicators in response to Noonan's comments last year, and then look at the European financial indicators' response. If one assumes that the ECB is a reasonable and intelligent organisation, then it's hard to avoid the conclusion that its major worry is the European financial system, and not the Irish financial system. I think that's as close to evidence as one is likely to get.

Maybe we'll have to wait for the 30 year rule to be certain, but I think that these are reasonable deductions based on that which we do know.

Scofflaw

beeftotheheels wrote: »

Oh but it does. For the ECB to actually answer this in a meaningful way they would need to point fingers. Fingers the market may or may not have already pointed but for the ECB to state outright that the issue is e.g. the Cajas would add to the pressure on those financials. I'm stuck between wanting the truth as an Irish taxpayer and assuming that daylight is not always the best disinfection in a crisis as I think I mentioned in relation to the EBA stress tests (and didn't they work out well for all involved).


We don't have the data. Yes, they're drawing heavily on the LTRO but there's some evidence that the US money market funds are starting to return to unsecured bank debt by French and Latin banks. It is a trickle but the ECB should be very concerned about shutting it off (although not necessarily forcing us to bear the risk).

http://www.ft.com/intl/cms/s/0/83f10e54-43c0-11e1-9f28-00144feab49a.html#axzz1jtMzo7r6

OK - but there's no requirement for the ECB to point any fingers directly at, for example, the Cajas. A simple statement that the ECB sees "European contagion" as the issue would suffice - and if they can't say that, how can they say "Irish contagion"?

cordially,
Scofflaw

Scofflaw

later10 wrote: »

Well it makes perfect sense.

If you were JC Trichet or Draghi, you would recognize that any (official) acknowledgement of the view that "this could be bad for the senior Caja debt", for example, would validate the Irish government's clear preference to impose losses on senior Anglo debt. Honouring the senior debt at home so as to protect contagion elsewhere is a political minefield.

But that is currently exactly what is accepted as being the explanation by the Irish media, and that impression has been helped along by statements from the Irish government - Noonan's "nod as good as a wink" soundbites, for example.

later10 wrote: »

It isn't the money the ECB is worried about, the figure is negligible by ECB standards. What matters is not setting the precedent of writing down senior paper in the EA. It has never been done. If it happened in the periphery, the consequences could be catastrophic.

By the way, I'm not saying that this is evidence that the Irish contagion issue isn't true, of course. This is just a reason why it's indeed possible.

The reasons why it's most likely untrue can be seen in how Irish indicators have reacted to Anglo events in recent history.

Not at all. The reason there isn't spillover isn't just because everyone knows Anglo is dead. It's also because everyone knows the Irish banking system is fully funded, and that its senior obligations are ready to be met in full.

So the markets aren't concerned by potential writedowns in Anglo because they know that the other Irish banks are fully funded? But they also know that Anglo is fully funded, and by the same body, so that makes no sense.

later10 wrote: »

I must admit I have been out of the loop on Irish politics lately, so I have no idea what they've been saying about it.

I think the present Irish government is quite a diplomatically intelligent one, and it understands that banging the table and throwing a strop is neither going to help its case with the ECB (e.g. on the issue of the promissory notes) and will probably only spark a mini outrage if they were to admit to "taking one for the team".

That's the point, though - the government have done rather a lot to encourage the view that they're "taking one for the team".

later10 wrote: »

Yes but disagreement is perfectly reasonable here.

The inference that the ECB is worried about setting a dangerous precedent isn't built on the inherent danger of that precedent in itself, but rather by deducing that there is no other alternative component which the ECB might perceive, which carries the same sort of weight.

Look at the Irish financial indicators in response to Noonan's comments last year, and then look at the European financial indicators' response. If one assumes that the ECB is a reasonable and intelligent organisation, then it's hard to avoid the conclusion that its major worry is the European financial system, and not the Irish financial system. I think that's as close to evidence as one is likely to get.

Maybe we'll have to wait for the 30 year rule to be certain, but I think that these are reasonable deductions based on that which we do know.

They're a deduction of a plausible position, but are even better explained by the impetus coming from the Irish government with the ECB as its ally, rather than the ECB with the Irish government as its opponent.

cordially,
Scofflaw

FreudianSlippers

later10 wrote: »

That Act cannot be used to address any such disputes that occured within the last 3 years, it having been replaced that long ago.

I'm sorry, you are correct - repealed but replaced by similar provision inserted in the Conveyancing Law Reform Act 2009 I believe!

hatrickpatrick

later10 wrote: »

The inference that the ECB is worried about setting a dangerous precedent

You mean a precedent that if you choose to gamble and your horse doesn't win, it's not anyone else's responsibility to refund your stupidity?

"Dangerous" indeed. Shocking.
Remind me of that the next time I'm in Paddy Power. If my horse doesn't win, I presume I have the right to walk out into the street and take money out of the pockets of everyone out there to pay for my mistakes?

patwicklow

hatrickpatrick wrote: »

You mean a precedent that if you choose to gamble and your horse doesn't win, it's not anyone else's responsibility to refund your stupidity?

"Dangerous" indeed. Shocking.
Remind me of that the next time I'm in Paddy Power. If my horse doesn't win, I presume I have the right to walk out into the street and take money out of the pockets of everyone out there to pay for my mistakes?

If you were a millionaire you probably could do that and get away scot free,
That is what these bond holders are doing to folk and generations to follow,
were paying for it now in every day living and it just keeps going up and up and up.the country will come to a complete stand still i can see it coming sooner rather then later.

Scofflaw

hatrickpatrick wrote: »

You mean a precedent that if you choose to gamble and your horse doesn't win, it's not anyone else's responsibility to refund your stupidity?

"Dangerous" indeed. Shocking.
Remind me of that the next time I'm in Paddy Power. If my horse doesn't win, I presume I have the right to walk out into the street and take money out of the pockets of everyone out there to pay for my mistakes?

A vapid and hackneyed comparison of no real relevance.

regards,
Scofflaw

FreudianSlippers

hatrickpatrick wrote: »

You mean a precedent that if you choose to gamble and your horse doesn't win, it's not anyone else's responsibility to refund your stupidity?

"Dangerous" indeed. Shocking.
Remind me of that the next time I'm in Paddy Power. If my horse doesn't win, I presume I have the right to walk out into the street and take money out of the pockets of everyone out there to pay for my mistakes?

Scofflaw wrote: »

A vapid and hackneyed comparison of no real relevance.

regards,
Scofflaw

In his own way he has highlighted the ECB's concern though. If they were to allow Ireland to burn its senior bondholders, akin to allowing hatrickpatrick being allowed to "walk into the street and take money out of the pockets of everyone out there to pay for my mistakes", then everyone would start doing that. Mayhem!

FinanceGuru

In short the argument around not burning senior bank bondholders is now redundant. Senior unsecured bank debt is no longer a viable instrument for the financial sector as it is no longer permittable as a liquid asset and as such banks (historically the largest investors in this debt class) have no reason to purchase it. The only debt allowed is sovereign bonds (genius given the situation in Greece) and Covered Bond. This is clear from the new bank debt issuance thus far in 2011 on this side of the atlantic - which has been largely covered bonds. It is an irrelevant instrument.

Also following the Danish governments decision to allow its non-systemic banks (e.g. Amagerbanken) to default on senior unsecured debt obligations the sacred cow has already been sent to slaughter - albeit just outside the Eurozone - but close enough for it to be felt. The EU decision to push burden sharing on holders of the Greek sovereign further strengthens this argument - as in the eyes of the European financial regulators the sovereign debt was risk free - the ludicrousness of this decision is clear from the circular reference (bank-sovereign-bank).

In the case of Anglo (IBRC), previous posters are correct that the equal ranking to depositors argument is also dead - the sale of the deposits and ceasing of new lending activities changed the game and anything basically goes. Although prominent members of the European Union have made soundbites against senior debt burden sharing in the background Germany changed its own laws to allow for it in the future! The usual two-faced politicians at play.

The Irish Government has a vested interest in paying out the "evil bondholders". The bondholders have served them well as a scapegoat for their own poor investment decision - like a bad gambler they kept sinking money into a losing hand - when the initial €5bn turned into €10bn and kept on trucking nobody pulled Lenehan aside and stopped him pouring good money after bad - even a Vegas Vagrant knows the concept of a stop-loss. The Irish Government pumped >€30bn in new money into Anglo after it had failed, blaming the bondholders has been convenient but no bondholder ever held a gun to their heads. The legislation introduced (and used to nationalise AIB and wrecklessly sell-off their prime jewel against the existing shareholders far better judgment) would easily allow forced losses on the Anglo senior debt under an SLO - so basically it is the Governments decision not to burn bond holders in this case.

On the other hand the senior unsecured Bond investors invested nothing new following the collapse - they are either sitting on legacy holdings praying they are made good, or they bought them opportunistically in the hope that the governments own shame will lead to full pay-out. For those of you that took the punt and will be paid out on Wednesday I applaud your nerves. You are not to blame for the Government and the former Anglo managements decisions - you gambled with your own money and won, the Government gambled with the taxpayers money and lost. Its always easier to risk someone elses money. Who's the villian of this drawn out pantomime?

FreudianSlippers

Heard Noonan on Pat Kenny briefly this morning and he appeared to be advancing the proposition again that it is the ECB that does not want us to burn the senior bondholders (again citing the "contagion" argument on behalf of the ECB). It was put to him that IBRC has enough in assets to cover bondholder repayments if it were totally closed down today and they were told to come and get their money.
The only people there would not be enough money to pay would be the ICB. Noonan didn't seem to disagree with this, and basically restated that the ECB doesn't think we should do this.

It was also put to the Minister that the argument would make sense if it were discussing AIB or an actual operating bank and that the contagion argument and it's parallel "why should we fund banks you're unwilling to fund" statement but makes no sense in discussing Anglo/IBRC.

It seems to me like a logical enough step to assume it is safe to ignore the ICB debts, but I must be missing something.

Liam Byrne

FreudianSlippers wrote: »

hatrickpatrick wrote: »

You mean a precedent that if you choose to gamble and your horse doesn't win, it's not anyone else's responsibility to refund your stupidity?

"Dangerous" indeed. Shocking.
Remind me of that the next time I'm in Paddy Power. If my horse doesn't win, I presume I have the right to walk out into the street and take money out of the pockets of everyone out there to pay for my mistakes?

Scofflaw wrote: »

A vapid and hackneyed comparison of no real relevance.

regards,
Scofflaw

In his own way he has highlighted the ECB's concern though. If they were to allow Ireland to burn its senior bondholders, akin to allowing hatrickpatrick being allowed to "walk into the street and take money out of the pockets of everyone out there to pay for my mistakes", then everyone would start doing that. Mayhem!

You have that backwards.

Anglo lost, therefore its bondholders lost.

Because of sickening FF & Green decisions we are stuck with the guaranteed bondholders but should have no obligation to pay the unguaranteed ones.

And does anyone know whether we're even reducing their rate of return, given that they are now essentially guaranteed ?

i.e. if a guaranteed guy got 2% because of his safe bet and an unguaranteed guy got 8% because of the risk, shouldn't the second guy now be getting 2% or less ?

Scofflaw

FreudianSlippers wrote: »

Heard Noonan on Pat Kenny briefly this morning and he appeared to be advancing the proposition again that it is the ECB that does not want us to burn the senior bondholders (again citing the "contagion" argument on behalf of the ECB). It was put to him that IBRC has enough in assets to cover bondholder repayments if it were totally closed down today and they were told to come and get their money.
The only people there would not be enough money to pay would be the ICB. Noonan didn't seem to disagree with this, and basically restated that the ECB doesn't think we should do this.

It was also put to the Minister that the argument would make sense if it were discussing AIB or an actual operating bank and that the contagion argument and it's parallel "why should we fund banks you're unwilling to fund" statement but makes no sense in discussing Anglo/IBRC.

It seems to me like a logical enough step to assume it is safe to ignore the ICB debts, but I must be missing something.

It's not strictly a case of "repaying" the ICB. The ICB created the money to match the promissory notes, which it took as collateral. The ICB has to get that money back and destroy it again, and there will presumably be a real agreement covering that transaction, because the ICB could only create the money with the ECB's permission, and the ECB will presumably only have agreed if the money was destroyed again afterwards - otherwise the ICB has effectively been allowed to inject €30bn into the eurozone monetary system. That's not a lot compared to the size of the eurozone, obviously, but if Ireland's central bank is allowed to print money on behalf of the Irish government and not have to destroy it again afterwards, why can't Italy do the same, or Spain?

The promissory notes, in effect, boil down to doing what we would have done in extremis if we had our own currency - printing money. Printing money has an inflationary effect, of course, and offers only a very temporary advantage, even with your own currency - the effects come back in exchange rate reductions and heightened domestic inflation, so the general public and businesses wind up picking up the tab.

What has happened here instead is that the Irish government has been allowed to print money, but to prevent the inflationary effect (and to prevent others wanting to do the same) they're being required to destroy the same amount of money again over the next 10 years. We can argue for a longer term, which is purely to our benefit, because the small amount of inflation the €30bn produces isn't borne by Ireland alone, but spread out across the whole eurozone.

So the ECB, whose only real mandate is to control inflation in the eurozone, genuinely can't allow us to renege on the promissory notes, and must be cautious even about extending the term of them, because the longer the money is in the system the more prolonged the inflationary effect it has.

cordially,
Scofflaw

FreudianSlippers

Scofflaw wrote: »

It's not strictly a case of "repaying" the ICB. The ICB created the money to match the promissory notes, which it took as collateral. The ICB has to get that money back and destroy it again, and there will presumably be a real agreement covering that transaction, because the ICB could only create the money with the ECB's permission, and the ECB will presumably only have agreed if the money was destroyed again afterwards - otherwise the ICB has effectively been allowed to inject €30bn into the eurozone monetary system. That's not a lot compared to the size of the eurozone, obviously, but if Ireland's central bank is allowed to print money on behalf of the Irish government and not have to destroy it again afterwards, why can't Italy do the same, or Spain?

The promissory notes, in effect, boil down to doing what we would have done in extremis if we had our own currency - printing money. Printing money has an inflationary effect, of course, and offers only a very temporary advantage, even with your own currency - the effects come back in exchange rate reductions and heightened domestic inflation, so the general public and businesses wind up picking up the tab.

What has happened here instead is that the Irish government has been allowed to print money, but to prevent the inflationary effect (and to prevent others wanting to do the same) they're being required to destroy the same amount of money again over the next 10 years. We can argue for a longer term, which is purely to our benefit, because the small amount of inflation the €30bn produces isn't borne by Ireland alone, but spread out across the whole eurozone.

So the ECB, whose only real mandate is to control inflation in the eurozone, genuinely can't allow us to renege on the promissory notes, and must be cautious even about extending the term of them, because the longer the money is in the system the more prolonged the inflationary effect it has.

cordially,
Scofflaw

Ah that makes sense now. To put it in very simple terms, the ECB said you can pretend to have €30bn which you can "loan" on the condition that when you are paid back you effectively destroy the €30bn (but presumably are allowed to keep any interest made from it?)

Scofflaw

FreudianSlippers wrote: »

Ah that makes sense now. To put it in very simple terms, the ECB said you can pretend to have €30bn which you can "loan" on the condition that when you are paid back you effectively destroy the €30bn (but presumably are allowed to keep any interest made from it?)

That seems to be it in a nutshell, except there's not really any interest to keep, because the interest is only there to ensure that amount we pay back and destroy in, say, 2020, is worth €3.1bn in current terms.

So when someone says that the total cost of the promissory notes is "much greater than the €30bn", they're mixing up current and future values of money. The total we destroy over the lifetime of the notes, including interest, has to match the €30bn created in 2010 - so while the number is bigger on paper, the value is the same.

It's a bit like a magic purse in a fairy tale, where you can take any amount out as long as the same amount goes back in - but adjusted for inflation, which admittedly isn't usually a part of the fairy tale...

I'd still like such a purse, mind you.

cordially,
Scofflaw