ECB's thoughts on Ireland

beeftotheheels

The text from Jorg Asmussen's speech to the IIEA

http://www.ecb.int/press/key/date/2012/html/sp120412.en.html

I thought that the whole was quite measured and a little more sympathetic than we've previously heard from the ECB. However, it does contain inflamatory material like

I frequently hear in the Irish debate the sense that the debt resulting from the bank rescue is not Ireland's debt. I can understand this sentiment and how many people feel about this situation. But what must be understood, is that in the run-up to the crisis, insufficient domestic policies (banking supervision and economic policies) played a major role in excessive credit growth and risk management failures in the Irish banking sector, the bubble in the housing market and the loss of competitiveness.

As to the ECB's regulatory role

The ECB has no supervisory responsibilities, despite claims to contrary. However, the ECB had warned years before the crisis that imbalances were building up in a number of euro area countries. Moreover, from a market perspective, those debts associated with the banking crisis are not differentiated from other sovereign debt. With the guarantee of 2008, large parts of the debt of Irish banks became a debt of the State, and any desire to offload this debt could have dire consequences.

Talk of default...

Furthermore, to suggest that debt-relief should be considered risks undermining the programme by inferring that it is needed, when as I mentioned, the programme is on track and Ireland has very good chances to return to markets before the end of the programme, secure debt sustainability, and along with it, a bright future.

And the Anglo senior unsecured - emphasis mine

I know that the decisions concerning the repayment of bondholders in the former Anglo Irish Bank have been a source of controversy. Decisions taken by the Irish authorities such as these are not taken lightly. And the consequences of subsequent actions are weighed carefully. It is true that the ECB viewed it as the least damaging course to fully honour the outstanding senior debts of Anglo. However unpopular that may now seem, this assessment was made at a time of extraordinary stresses in financial markets and great uncertainty. Protecting the hard-won gains and credibility from the early successes in 2011 was also a key consideration, to ensure no negative effects spilled-over to other Irish banks. Determined action and a willingness to take tough, even controversial decisions, has placed Ireland’s financial system on a steadier footing.

So not a threat to the ESB's borrowing costs per se then, but rather the more obvious threat to the European banking sector. Protecting hard won gains... is the after thought, not the primary driver.

Scofflaw

beeftotheheels wrote: »

The text from Jorg Asmussen's speech to the IIEA

http://www.ecb.int/press/key/date/2012/html/sp120412.en.html

I thought that the whole was quite measured and a little more sympathetic than we've previously heard from the ECB. However, it does contain inflamatory material like

I frequently hear in the Irish debate the sense that the debt resulting from the bank rescue is not Ireland's debt. I can understand this sentiment and how many people feel about this situation. But what must be understood, is that in the run-up to the crisis, insufficient domestic policies (banking supervision and economic policies) played a major role in excessive credit growth and risk management failures in the Irish banking sector, the bubble in the housing market and the loss of competitiveness.

I know people will find that inflammatory, but they really shouldn't. It remains a major concern of mine that in the rush to point the finger at the ECB, the Germans, or the Opposition parties, the main lesson - regulate the damned banks properly - will be lost.

beeftotheheels wrote: »

As to the ECB's regulatory role

The ECB has no supervisory responsibilities, despite claims to contrary. However, the ECB had warned years before the crisis that imbalances were building up in a number of euro area countries. Moreover, from a market perspective, those debts associated with the banking crisis are not differentiated from other sovereign debt. With the guarantee of 2008, large parts of the debt of Irish banks became a debt of the State, and any desire to offload this debt could have dire consequences.

I'm blue in the face at this stage saying "the ECB had no supervisory role". And, yes, once the State took on the debt, it became sovereign debt. There is no "legal difference".

beeftotheheels wrote: »

Talk of default...

And the Anglo senior unsecured - emphasis mine

So not a threat to the ESB's borrowing costs per se then, but rather the more obvious threat to the European banking sector. Protecting hard won gains... is the after thought, not the primary driver.

A lot depends on when we're talking about there, though. The ECB had no involvement with paying off the 90% of the bondholders who were paid off under the original Guarantee.

cordially,
Scofflaw

later12

I'm quite sure Jorg Asmussen has a sense of humour.

Any proposal to reorganize and strengthen the Irish banking sector, and in this context to replace promissory notes with support from the EFSF must meet important criteria[...] The ECB is ready to work with the Irish authorities on such proposals.

This is a no-brainer from the ECB's perspective. They hate the sight and smell and look and feel of the promissory notes. They hate ELA. They hate Anglo. They would be only too delighted to reduce their exposure to all of the above at the expense of foolish politicians via the EFSF & ESM.

Having said that...

Jorg Asmussen wrote:

I understand that Minister Noonan has said that champagne corks will be popped on the night the Troika leaves Dublin.

I hope that's not metaphorical.

I don't know about Minister Noonan, but given the choice I think I'd be hanging out of their legs, begging them not to leave the Irish at the mercy of our politicians ever again.

Francie Barrett

A most reasonable statement from our European colleagues.

Given our improving fiscal position, and that within the markets, I think it would be incredibly foolish for the government to unilaterally deviate from the ECB/IMF program. Contrary to popular opinion, the image of a boorish Germany with their fingers clasped to their purse could not be more incorrect. While the negotiations have been at times slow, the government have been able to wrangle concessions on a variety of issues. I hope that Enda and his team can continue to push hard. At the same time, the Irish public need to be realistic - this is real debt, and it's not fair on the rest of Europe to just have it printed out of existence.

beeftotheheels

I should clarify.

1. I don't find it inflammatory, I agree with you 100% regarding regulating banks. But it will be seen as such so I thought I'd put it up front and center.

2.In relation to the senior unsecured I took him to be referencing the last two payments only, in which case the admission, though obvious to many observers, that the primary driver was instability elsewhere and not a specific Irish risk to the ESB's borrowing costs (per the Minister for Transport) is bound to have some commentators hopping up and down and screaming that it's not fair despite the size of the damage that contagion could do to our exports and the relatively small amounts of those payments.

The contagion of Spain may be unavoidable at the stage, but any arguments on the senior unsecured will be premised that either that was always the case so why did we pay to try and help Spanish and Italian banks, or it will ignore the contagion effect on our exports entirely.

beeftotheheels

later12 wrote: »

I'm quite sure Jorg Asmussen has a sense of humour.


This is a no-brainer from the ECB's perspective. They hate the sight and smell and look and feel of the promissory notes. They hate ELA. They hate Anglo. They would be only too delighted to reduce their exposure to all of the above at the expense of foolish politicians via the EFSF & ESM.

You mean that the ECB didn't like allowing the CBI print money and wants that money out of the system? It is funny isn't it. In our search for ECB villains we so often miss the tension between the ECB and the Governments of the core States. We have to assume that their interests converge in order to substantiate the position that they're all out to get us.

I'm sure that the ECB would love nothing more than for the EFSF to lend us the cash to put into IBRC. The EFSF would have to raise the funds so might be wary, and our cost of borrowing in real terms would increase from the ECB base rate (if the CBI even imputes interest to the ECB on funds it printed) to the EFSF rate.

Duggys Housemate

Scofflaw wrote: »

I know people will find that inflammatory, but they really shouldn't. It remains a major concern of mine that in the rush to point the finger at the ECB, the Germans, or the Opposition parties, the main lesson - regulate the damned banks properly - will be lost.

Nobody could have foreseen a decade of negative real interest rates.

I'm blue in the face at this stage saying "the ECB had no supervisory role". And, yes, once the State took on the debt, it became sovereign debt. There is no "legal difference".

Except, the banks lied. Since the Government is an investor, that constitutes a potential loophole.

later12

beeftotheheels wrote: »

In our search for ECB villains we so often miss the tension between the ECB and the Governments of the core States. We have to assume that their interests converge in order to substantiate the position that they're all out to get us.

I think that's true. On that note, the ECB, by its very nature as a technical organisation, rarely gets an opportunity to speak to the public outside of rate setting webstreams watched only by financial anoraks and journalists.

It is therefore very easy for politicians to tactfully demonise the ECB for what are, in fact governance failures. It is also easy for the media to throw out the baby with the bathwater in its criticism of the debt crises. As politicians fumble for credible responses to difficult questions, ECB culpability is almost implied by its near silence. As Jorg Asmussen points out, it's not quite so.

Generally I find the ECB an impressive organisation. It probably has the largest concentration of people who actually know what they are talking about per square foot relative to all of other European institutions.

If only they didn't insist on following all of those bothersome rules that the less competent institutions have crafted.

Scofflaw

Duggys Housemate wrote: »

Nobody could have foreseen a decade of negative real interest rates.

I think that by the time something has been happening for a decade, it doesn't require foresight to see it. Nor does it really have anything to do with whether banks should be regulated.

Duggys Housemate wrote: »

Except, the banks lied. Since the Government is an investor, that constitutes a potential loophole.

Under those circumstances the government would, I think, have to get the money involved back out of the banks. It's not really an argument that applies to the people who loaned the government the money they put in.

cordially,
Scofflaw

beeftotheheels

later12 wrote: »

If only they didn't insist on following all of those bothersome rules that the less competent institutions have crafted.

They don't have much choice given the direct effect of EU law and the fact that German taxpayers keep litigating/ threatening to litigate.

Latest is on the ESM and Fiscal Compact which is being challenged by previous German Law makers as being unconstitutional. We could end up in the ironic position of having to have a referendum on a treaty which Germany herself cannot ratify unless Angela can muster the super majority required for constitutional change.

Duggys Housemate

Scofflaw wrote: »

I think that by the time something has been happening for a decade, it doesn't require foresight to see it. Nor does it really have anything to do with whether banks should be regulated.

I am not sure what regulation would have done. Banks had been given cheap money, for a decade, by the incompetents at the ECB. To drive the economies of the centre, which were sclerotic at the time. There is little or nothing that Ireland could have done, and it was akin to opening the Hoover damn and blaming downstream villages for not building enough flood defences. Cheap money was the main cause of the bubble, prior to the Euro Ireland grew strongly but had no bubble, the regulation stayed the same.

Under those circumstances the government would, I think, have to get the money involved back out of the banks. It's not really an argument that applies to the people who loaned the government the money they put in.

I don't really get that. Ireland could have said, after the sovereign guarantee, that the guarantee was made on false pretences and all bank debt was null.

beeftotheheels

Duggys Housemate wrote: »

I am not sure what regulation would have done. Banks had been given cheap money, for a decade, by the incompetents at the ECB. To drive the economies of the centre, which were sclerotic at the time. There is little or nothing that Ireland could have done, and it was akin to opening the Hoover damn and blaming downstream villages for not building enough flood defences. Cheap money was the main cause of the bubble, prior to the Euro Ireland grew strongly but had no bubble, the regulation stayed the same.

Did you read the Nyberg report?

http://www.bankinginquiry.gov.ie/Documents/Misjuding%20Risk%20-%20Causes%20of%20the%20Systemic%20Banking%20Crisis%20in%20Ireland.pdf

There were plenty of things that could have been done, and weren't.

Thread on it http://www.boards.ie/vbulletin/showthread.php?p=71781900

Duggys Housemate wrote: »

I don't really get that. Ireland could have said, after the sovereign guarantee, that the guarantee was made on false pretences and all bank debt was null.

which could have triggered both a run on the banks and a run on the sovereign. You can see how a sovereign publicly withdrawing its support for its banking system and alleging massive fraud (which I don't believe has been established yet) could have had nasty implications?

You do realize that one of the reasons for the guarantee is that AIB and BoI were considered systemic (and Brian thought it would be the cheapest bailout in the world)?

Finance is not an exact science and stating something can make it so as the market prices that in.

later12

beeftotheheels wrote: »

They don't have much choice given the direct effect of EU law and the fact that German taxpayers keep litigating/ threatening to litigate.

Oh yes, I'm being facetious in suggesting that the ECB should not follow the rules. People have to accept that the ECB's Governing Council are not to blame for the monetary structures designed and engineered by politicians. They have to work with what they've been handed.

Having said that, I think the ECB do stray a little too far outside of their box sometimes. Especially in relation to openly musing on member states' fiscal policies, and the desirability of certain consolidation measures over others, which I would have thought is a political question, to be solved by politicians.

Duggys Housemate

beeftotheheels wrote: »

Did you read the Nyberg report?

http://www.bankinginquiry.gov.ie/Documents/Misjuding%20Risk%20-%20Causes%20of%20the%20Systemic%20Banking%20Crisis%20in%20Ireland.pdf

I am sure there is stuff in there, the main reason for the asset bubble was cheap money.


There were plenty of things that could have been done, and weren't.

which could have triggered both a run on the banks and a run on the sovereign. You can see how a sovereign publicly withdrawing its support for its banking system and alleging massive fraud (which I don't believe has been established yet) could have had nasty implications?

Not then, now. Or in the last year or two, since the new government for into power. Go to Europe and say - hey, these banks lied, we are not paying their debt as it was made under false pretence, we will leave it to the bond holders ( Oh! is that your banks, really!! Wow! whudda thunk it), and our debt drops to 60% so back to the markets we go.

Apparently we paid €1.5B from Anglo to AIB last week, even though we own AIB. Cant even write our own debt off.

Scofflaw

Duggys Housemate wrote: »

I am not sure what regulation would have done. Banks had been given cheap money, for a decade, by the incompetents at the ECB. To drive the economies of the centre, which were sclerotic at the time. There is little or nothing that Ireland could have done, and it was akin to opening the Hoover damn and blaming downstream villages for not building enough flood defences. Cheap money was the main cause of the bubble, prior to the Euro Ireland grew strongly but had no bubble, the regulation stayed the same.

I'm afraid that's just entirely wrong. The ECB gave the Irish banks no money prior to the crisis. The system doesn't even work that way.

In terms of what people are actually claiming - that low ECB rates meant low Irish rates, and that speculative money flowed from the older core economies to the peripheral economies - the phenomenon was global. Hence the property bubbles all across the world, from Australia to the US to Iceland, none of which are in the euro. For example, here's house price growth in three Scandinavian countries:



Of the three, only Finland is in the euro, yet the rates all climb together, with euro-sceptic Denmark leading the charge. The "euro made the property bubble" is another facile argument with little explanatory power. We've just had twenty years of sustained increase in the world's supply of speculative capital - partly the result of the communist bloc joining the world capitalist economy, but also partly through extensive deregulation of the financial sector and the increasing sophistication and scope of the "retail" investor industry.

Duggys Housemate wrote: »

I don't really get that. Ireland could have said, after the sovereign guarantee, that the guarantee was made on false pretences and all bank debt was null.

Had they wanted to do so, perhaps they could have done. Whether they could have made such a claim stick is another question, but there's no evidence they ever wanted to rescind the guarantee. Sure, there's much talk now of how bad a thing the guarantee was, and Fianna Fáil seem to be doing their best to distance themselves from it, but we had two whole years of Lenihan defending it as the greatest thing since sliced bread.

cordially,
Scofflaw

Duggys Housemate

Scofflaw wrote: »

I'm afraid that's just entirely wrong. The ECB gave the Irish banks no money prior to the crisis. The system doesn't even work that way.

They set interest rates, which is where the cheap money came from. I didn't say Irish banks, but banks.
[/QUOTE]

beeftotheheels

Duggys Housemate wrote: »

I am sure there is stuff in there, the main reason for the asset bubble was cheap money.

Try reading it. It is not comfortable reading. The number of people asleep at the wheel is staggering. The regulatory failings are staggering.

The same cheap money available to us was available elsewhere yet no where else in the history of the euro did they manage a property bubble like ours. In fact pretty much no one else in the history of the world has managed one of our totally epic proportions. Which leads to the conclusion that while cheap money is part of the issue, there's a lot more to it than that, something which makes us very special indeed and the Nyberg report deals with this.

Duggys Housemate wrote: »

Not then, now. Or in the last year or two, since the new government for into power. Go to Europe and say - hey, these banks lied, we are not paying their debt as it was made under false pretence, we will leave it to the bond holders ( Oh! is that your banks, really!! Wow! whudda thunk it), and our debt drops to 60% so back to the markets we go.

Apparently we paid €1.5B from Anglo to AIB last week, even though we own AIB. Cant even write our own debt off.

It is really not that simple. It is really not. Collapse AIB and you leave thousands of pensioners, of families with young children, of just generally people with no access to cash. Businesses unable to pay salaries, unable to pay their suppliers. Absent what cash people have in their houses they can't buy groceries, buy oil. Devastation in short and no we're not Iceland as has been explained numerous times on other threads.

If the issue is the couple of billion in senior unguaranteed which has been paid out since we've been in program in respect of IBRC/ Anglo then while the gripe certainly has merit because the benefits cannot be quantified, knocking under €4bn off our national debt would not bring it back down to 60% or anything like.

Ken bryan

The ECB Is there to do Germany,s Bidding .
It might Be lead My a non German . But It Controled by Germans .
It tell to us to bail out our banks because our "private banks" owed so much to German Banks . So to Germany .We Forced into economic Salvery .
To save the German Banks and the German .Ecomomy .
It,s Germany interest to Keep us in the Euro as It Keeps the Euro low .
If we and the other weak countries left the Euro .
It would rise to 170 against the dollar . That would cause a recession in Germany as it exports would be to high .
So Germany needs Us Just as Much as We need Germany .
I wish Our Politicans Ie Judas Kenny Would remind The Germans Of this . He not A vicroy for Germany . He is the Representive For a independant Nation .
So he do his Job .
Vote No