Make your voice heard: Response needed from ECB on Anglo Irish Debt Burden

Scofflaw

makeorbrake wrote: »

There was though, wasn't there....

Not really - McCarthy is repeating the same rumour as before, with the same rather strange claim that the ECB had somehow threatened the government with destruction of the Irish banking sector in order to prevent the possible contagion caused by not repaying unguaranteed senior bonds in full. The supposed evidence is a letter from the ECB to Lenihan which, conveniently, will not be released by either the Dept of Finance or the ECB.

Like so many of the "threats" that Ireland is supposed to have held over the ECB/EU or the ECB/EU over Ireland, it makes no sense. Restricting the liquidity available to the Irish banks would have made them insolvent, causing them to implode, taking the Irish State with them courtesy of the guarantee. It would have produced another Greece, with all the massive instability that implies - and the ECB is supposed to have threatened to create this massive instability in order to force the government to pay off debt to prevent possible instability.

There are two possibilities, then, as far as I can see - either the ECB never said anything of the sort, or they weren't threatening the government with it, but pointing out a legal chain of consequences which the government found persuasive.

Either way, it's rather hard to be sure, since as far as we know Colm McCarthy has no more seen the contents of this letter than anyone else.

And that's actually quite unusual, because most things that it would be politically convenient for the Irish political class - and particularly Fianna Fáil - to have 'leaked', get leaked. Given the enormous unpopularity of the bailouts, and the convenience of blaming it on the ECB, a game Lenihan was quite happy to play, it's a little surprising the letter hasn't been leaked, if it contains evidence of force majeure by the ECB against the Irish government. If it doesn't, then it's rather less surprising.

Either way, as I said, we don't know, because we don't know what's in the letter, and neither does Colm McCarthy. So I'm afraid he's repeating rumour, and you're repeating his repetition of a rumour, neither of which really adds any weight to the rumour.

cordially,
Scofflaw

beeftotheheels

Scofflaw wrote: »

Not really - McCarthy is repeating the same rumour as before, with the same rather strange claim that the ECB had somehow threatened the government with destruction of the Irish banking sector in order to prevent the possible contagion caused by not repaying unguaranteed senior bonds in full. The supposed evidence is a letter from the ECB to Lenihan which, conveniently, will not be released by either the Dept of Finance or the ECB.

Like so many of the "threats" that Ireland is supposed to have held over the ECB/EU or the ECB/EU over Ireland, it makes no sense. Restricting the liquidity available to the Irish banks would have made them insolvent, causing them to implode, taking the Irish State with them courtesy of the guarantee. It would have produced another Greece, with all the massive instability that implies - and the ECB is supposed to have threatened to create this massive instability in order to force the government to pay off debt to prevent possible instability.

There are two possibilities, then, as far as I can see - either the ECB never said anything of the sort, or they weren't threatening the government with it, but pointing out a legal chain of consequences which the government found persuasive.

Either way, it's rather hard to be sure, since as far as we know Colm McCarthy has no more seen the contents of this letter than anyone else.

And that's actually quite unusual, because most things that it would be politically convenient for the Irish political class - and particularly Fianna Fáil - to have 'leaked', get leaked. Given the enormous unpopularity of the bailouts, and the convenience of blaming it on the ECB, a game Lenihan was quite happy to play, it's a little surprising the letter hasn't been leaked, if it contains evidence of force majeure by the ECB against the Irish government. If it doesn't, then it's rather less surprising.

Either way, as I said, we don't know, because we don't know what's in the letter, and neither does Colm McCarthy. So I'm afraid he's repeating rumour, and you're repeating his repetition of a rumour, neither of which really adds any weight to the rumour.

cordially,
Scofflaw

Have to disagree. Makes perfect sense to me that they would (and should) have threatened to collapse our banks if our Government didn't stand over them.

Look at the numbers, our banks had become a systemic risk to the ECB balance sheet through ELA, and if our Government didn't stand over our banks is there any chance that Spanish national debt would look as it does right now?

If Ireland allowed a chaotic bank default Spain was next in line, yes the Spanish Central Bank imposed higher capital ratios than the CBI but despite having a bubble of comparable proportions, Spanish banks have written off a hell of a lot less. 10% tier one capital or 20% tier one capital matters not one iota when your banking system's assets fall by 50% plus.

Then again, I suppose some people still subscribe to the notion that property has an intrinsic value divorced entirely from the "perceived" strength of the banking system.

Our gripe is with Spain, entirely with Spain. But the ECB cannot say that without turning the spotlight on Spain. What definition of logic suggests that the ECB should risk putting in play either the EU's 4th largest economy, or the banking sector of that 4th largest economy (and hence that economy) at the expense of the much more manageable "Ireland"? Oh, logic dictates that our issue is with Spain, entirely with Spain (check out Caja fundraising targets when we had to pay out on the last lot of IBRC notes) but does our world actually get any better if we help sink the Spanish economy? I don't think so, the domino effect would be horrific.

Scofflaw

beeftotheheels wrote: »

Have to disagree. Makes perfect sense to me that they would (and should) have threatened to collapse our banks if our Government didn't stand over them.

Look at the numbers, our banks had become a systemic risk to the ECB balance sheet through ELA, and if our Government didn't stand over our banks is there any chance that Spanish national debt would look as it does right now?

If Ireland allowed a chaotic bank default Spain was next in line, yes the Spanish Central Bank imposed higher capital ratios than the CBI but despite having a bubble of comparable proportions, Spanish banks have written off a hell of a lot less. 10% tier one capital or 20% tier one capital matters not one iota when your banking system's assets fall by 50% plus.

Then again, I suppose some people still subscribe to the notion that property has an intrinsic value divorced entirely from the "perceived" strength of the banking system.

Our gripe is with Spain, entirely with Spain. But the ECB cannot say that without turning the spotlight on Spain. What definition of logic suggests that the ECB should risk putting in play either the EU's 4th largest economy, or the banking sector of that 4th largest economy (and hence that economy) at the expense of the much more manageable "Ireland"? Oh, logic dictates that our issue is with Spain, entirely with Spain (check out Caja fundraising targets when we had to pay out on the last lot of IBRC notes) but does our world actually get any better if we help sink the Spanish economy? I don't think so, the domino effect would be horrific.

Possibly I'm not reading that right, but it seems to me that it has exactly the same problem already outlined - the ECB's "threat" was to collapse the Irish banking system a lot, in order to prevent the government collapsing it a little?

confused,
Scofflaw

beeftotheheels

Scofflaw wrote: »

Possibly I'm not reading that right, but it seems to me that it has exactly the same problem already outlined - the ECB's "threat" was to collapse the Irish banking system a lot, in order to prevent the government collapsing it a little?

confused,
Scofflaw

Yup, that's about the sum of it which makes perfect sense commercially and given the role defined in the treaties.

Our Government was always going to blink first, because on a banking level the ECB could feasibly have argued that by throwing us to the wind (Euro exit etc), they were better protecting the whole (and no one was looking at Spain at that point in time regardless of whether they should have been or not), whereas our Government wanted to keep us in the club so they had to blink.

Interaction of TEU with TFEU should be considered and as to whether the ECB breached the former, but the notion that they put a gun to our heads makes perfect sense, is entirely logical, I'd have done the same in their boots.

Scofflaw

beeftotheheels wrote: »

Yup, that's about the sum of it which makes perfect sense commercially and given the role defined in the treaties.

Our Government was always going to blink first, because on a banking level the ECB could feasibly have argued that by throwing us to the wind (Euro exit etc), they were better protecting the whole (and no one was looking at Spain at that point in time regardless of whether they should have been or not), whereas our Government wanted to keep us in the club so they had to blink.

Interaction of TEU with TFEU should be considered and as to whether the ECB breached the former, but the notion that they put a gun to our heads makes perfect sense, is entirely logical, I'd have done the same in their boots.

I don't have a particular problem with the idea that the ECB held a gun to Ireland's head, given the circumstances, but I have difficulties with the specific threat suggested. How would the ECB carrying out its threat not have led to greater instability? And that being the case, what made the threat credible?

cordially,
Scofflaw

beeftotheheels

Scofflaw wrote: »

I don't have a particular problem with the idea that the ECB held a gun to Ireland's head, given the circumstances, but I have difficulties with the specific threat suggested. How would the ECB carrying out its threat not have led to greater instability? And that being the case, what made the threat credible?

cordially,
Scofflaw

You can't measure instability like that, there was instability and potentially collapsing a banking system and booting a country out of the euro could have led to greater instability, but one could similarly argue (one letter and six months) that basket case islands off the west coast of Europe with banking systems out of control should be left to fend for themselves.

Remember back then that we all knew that the US and UK banks were in trouble in 08, and the Irish and Icelandic banks not too long after that.

But back then the Spanish banks were considered to be a paradigm of virtue, German Landesbanken were crackers but the rest of the mainland banking system was sound. So the threat to allow our banking system collapse to protect the rest should have been credible. Clearly an argument could have been made that Irish banks were distinguishable from other European banks so letting us do an Iceland would have been okay.

In addition to that they had their very strict mandate on their side. At that point in time we owned Anglo and Anglo was most of the problem. If we didn't promise to stand over Anglo's ELA then the CBI would have been engaged in illegal State Financing so the ECB would have had no choice but to pull the plug.

Now we know that the whole European banking system has issues (in fact the crisis has actually created those issues in some cases) so in that light it clearly would be bonkers for the ECB to collapse a banking system, or even to threaten it.

Whether they'd have done it or not is moot, I think they could have made a very credible threat, not least that legally they'd have had no alternative given the prohibition of State Financing.

Scofflaw

beeftotheheels wrote: »

You can't measure instability like that, there was instability and potentially collapsing a banking system and booting a country out of the euro could have led to greater instability, but one could similarly argue (one letter and six months) that basket case islands off the west coast of Europe with banking systems out of control should be left to fend for themselves.

Remember back then that we all knew that the US and UK banks were in trouble in 08, and the Irish and Icelandic banks not too long after that.

But back then the Spanish banks were considered to be a paradigm of virtue, German Landesbanken were crackers but the rest of the mainland banking system was sound. So the threat to allow our banking system collapse to protect the rest should have been credible. Clearly an argument could have been made that Irish banks were distinguishable from other European banks so letting us do an Iceland would have been okay.

That argument, though, goes both ways - if allowing Ireland to do an Iceland was OK because "Irish banks were distinguishable from other European banks" then the same argument applies to the smaller case of allowing Ireland to write down unguaranteed senior debt.

beeftotheheels wrote: »

In addition to that they had their very strict mandate on their side. At that point in time we owned Anglo and Anglo was most of the problem. If we didn't promise to stand over Anglo's ELA then the CBI would have been engaged in illegal State Financing so the ECB would have had no choice but to pull the plug.

Now we know that the whole European banking system has issues (in fact the crisis has actually created those issues in some cases) so in that light it clearly would be bonkers for the ECB to collapse a banking system, or even to threaten it.

Whether they'd have done it or not is moot, I think they could have made a very credible threat, not least that legally they'd have had no alternative given the prohibition of State Financing.

That appealed, I admit, but having thought about that, I don't see how it works, because the same argument should apply to providing ELA and writing down junior bonds, and that was done. The ELA is reduced in line with the savings from the bond haircuts, no?

cordially,
Scofflaw

beeftotheheels

Scofflaw wrote: »

That argument, though, goes both ways - if allowing Ireland to do an Iceland was OK because "Irish banks were distinguishable from other European banks" then the same argument applies to the smaller case of allowing Ireland to write down unguaranteed senior debt.

I didn't say I believed it, I just said that it was an argument which could have been used against the Irish Government at the time, but then again I worry about contagion. Anglo unguaranteed senior only makes sense in the context of the European banking sector have access to markets, makes zero sense on a stand alone basis unless it could trigger a cross default on the sovereign and I'm sure we could burn it and prevent that from happening.

Scofflaw wrote: »

That appealed, I admit, but having thought about that, I don't see how it works, because the same argument should apply to providing ELA and writing down junior bonds, and that was done. The ELA is reduced in line with the savings from the bond haircuts, no?

cordially,
Scofflaw

Nope, fraid not. We've promised to stand over the ELA (hence the pro note issue and god are there a lot of people on the Irish Economy site who really don't understand them) which is why it is legal. We've promised to repay it. Had we not promised to repay it, a bank owned by one State would have defaulted on debts owed to the ECB. That would result in an infringement of either Arts 123 or 125 of the TFEU (had we not nationalised Anglo by that point in time we'd have been in a much better position since those arts couldn't have been invoked, there would have been no risk of State Financing and thus the ECB couldn't have had any basis for making a credible threat based on its mandate).

My take on the crisis is that at each step we've done what the ECB wanted us to do to contain the crisis, each of which might have worked but for the politicians elsewhere running around and doing the exact opposite. So now we're in a worse position than if we'd disobeyed the ECB but at the time we might have been right to obey them.

And we are getting something back through LTRO cash which our banks have gorged on, and the pro notes should be capable of being restructured to allow us some cash flow room and accounting benefits in terms of timing of recognition of costs.

But there is no obvious way for the ECB to relieve us of much of the cost of the banking crisis absent we take them to Court and seek to recover details of their internal discussions to determine if their concern was not about Ireland and then argue that any threats made were not proportional, didn't result in all Member States being treated equally etc in accordance with the TEU. Which would make us a whole load of pals in Germany.

makeorbrake

So we all think we should still keep paying this unjust debt?

Just one link to one of the many articles in the past week - ten days outlining that we simply can't carry the debt burden that we have been shouldering;

LINK

makeorbrake

makeorbrake wrote: »

So we all think we should still keep paying this unjust debt?

Just one link to one of the many articles in the past week - ten days outlining that we simply can't carry the debt burden that we have been shouldering;

LINK

What I get from that article is that talks are ongoing and we probably wont see a conclusion until after the German elections. Sounds fair enough to me. The Irish government can hardly come out and say this publicly - They also can't be seen to be doing nothing in regards to the debt by the Irish electorate - and what we see in these negotiations is the result of everyone saving face.

My own position is that I cannot see the government being forced to pay in the long term, it simply makes no sense in regards to the greater European good (for example, Germany would love for us to be buying more Merc's and 'Beamers, etc).