When examining the promissory note deal on here, the conclusion is that it does amount to monetary financing – allowing a State to create one fifth of its annual economic output in new money and charging a mere 0.75% per annum for such money, possibly for 15 years, in the view on here, is “monetary financing”. In Ireland’s case we have been allowed issue €25bn of bonds, equivalent to 1/5th of our annual Gross National Product of €127bn in 2011, and the plan published last week anticipates the ECB providing cash to us against these bonds for 15 years.
When analyzing the deal on here, there was high praise for Irish negotiators in convincing the ECB to accept such a deal. But the risk of other EuroZone countries seeking a similar deal was raised, and the triumph of last June’s EU summit when the communiqué afterwards said “similar cases will be treated equally” was regarded not as an asset to Ireland, but something that could come back to bite us on the bum. So what happens now if Cyprus demands 0.75% loans from the ECB to bail out its banks?
And this morning, there are reports emerging of the ECB threatening to renege on the deal, after the Germans said the Irish deal came “dangerously close” to monetary financing. [CORRECTION: 15th February, 2013. The president of the German Bundesbank Jens Weidmann is reported to have said that, in relation to the deal, the ECB “has to make sure that its actions are in conformity with its rules and statutes”. The ECB president has said that the ECB will re-examine the deal]
Perhaps we should be grateful at the deal last week which saw €25bn of promissory notes, which were almost definitely illegal in the context of ECB rules, and may well be unlawful in Ireland – something we may find out as David Hall’s challenge progresses through the courts – converted into sovereign debt. The view on here is that we should not be at all grateful, because even though the overall debt shouldered to bail out the banks has been reduced in net present value terms, we are still shouldering debt which threatens to seriously undermine our society.
How might the ECB renege on the deal? It might require the term in which the Central Bank of Ireland can hold our bonds, to be cut from 15 years to a much shorter term, perhaps even months.
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Oh my prophetic soul…
Well, What do you know, Jens Weidmann again.
This time, Ireland’s answer should be not one inch, not one cent. Accept the deal or the ECB gets nothing, nothing.
“”I’m very concerned about monetary policy being too closely intertwined with fiscal policy and crossing the line to monetary financing.” Weidmann.
States, particularly Ireland, are more than very concerned; in fact, they are apoplectic with anger, that the ECB did cross the line by insisting that States bail out banks.
‘Monetary financing’ in reverse, so that the ECB and its creditor and banker pals could be bailed out by the States.
Sometimes, when I hear of the great German fear of monetary financing, I have to remind myself of the historical sequence leading to its money printing episode.
Imperial and commercial hubris, war, defeat, imposed reparations, a State bankrupt by reparations, money printing presses..etc etc.
Perhaps Weidmann should study a little history, to get a better understanding of the genesis of inflation. He might learn something.
@NWL
On further thoughts, it seems wrong to dismiss millions and millions of people with the word etc etc. So with your indulgence;
Imperial and commercial hubris, war, defeat, imposed reparations, a State bankrupt by reparations, money printing presses, naziism, war, genocide, slaughter, millions upon millions of lives maimed and destroyed, defeat, assisted recovery, commercial strenght, economic and social progress, reunion, further commercial strenght, commercial hubris, economic dominance, regime changing, ……..
Weidmann may be right that it is Monetary Financing but it’s about time that that Muppet Head banker realised that the ECB have got to save “this Euro Sucker going down”. Which means all the fancy rules and principles must be thrown out the Window . He seems to think that that stuff is okay as long as everything is signed over to German Control . Governments are probably close to doing that but large elements of Populations won’t . The Truth is if they want fancy Principles and Control they ultimately won’t get either. If they ever Do then the European Project will ultimately in my view meet Armed Resistence from Within to change . If the ECB continues on it’s current path then in my view when the EuroZone goes down it will eventually bring down the European Project with it . In truth the ECB Euro Idea has failed and if the ECB want the EU and Euro to continue for most countries then some kind of Breakup or Restucturing back to their Own former Currencies should happen . It’s not Clear that Weidmann and Germany really grasp that that is exactly whats on the line here . Unless they do soon they will eventually lose control of the situation with devastating consequences for all . Yours Sincerely, Peter Pipesmoker .
There is a statement in this article that could not have been expressed more subtle:
…. we are still shouldering debt which threatens to seriously undermine our society…..
These debts and the process applied to them continues to dissolve the fragile social fabric, not only in Ireland, that allows for peace and development, and actively dismantles democratic structures, substituted by a financial oligarchy, a conglomerate of high finance as well as selected industrial and political driven interests.
One of the direct results of siuch policies applied is the extreme low wages market that is flourishing and drives “nomad workers” to accept work under appalling conditions and wages. Amazon in Germany shall be just one example here, one of many more, and many more to come….