• Home
  • NAMA property for sale
  • About
  • The Developers
  • The Tranches

NAMA Wine Lake

Click the green link above for latest news and over 2,600 related articles. NAMA – National Asset Management Agency – part of Ireland's response to its banking crisis and property bubble

Feeds:
Posts
Comments
« No wonder Wilbur is happy – NAMA has paid €1bn in state aid to Bank of Ireland
Another blow to transparency in Ireland as Noonan refuses to publish unaudited accounts for IBRC for 2012 »

German central bank criticizes promissory note deal

February 18, 2013 by namawinelake

DBBLogo

“But on Ireland, let me say this: there was not a decision to take. The Governing Council unanimously took note of the Irish operation and I am going to refer you to the Irish government and the Irish central bank for the details of this operation, which was designed and undertaken by the Irish government and the Irish central bank. I can only say today that we took note of this. We all took note of this.” ECB president Mario Draghi in response to the question “There have been reports in the media in the past hour that the ECB has reached a deal on Anglo Irish Bank and I was wondering whether you could confirm that and whether you could provide us with details of the agreement?” on 7th February 2013

Well, there’s one key difference between the websites of the Central Bank of Ireland and the German central bank, the Bundesbank – on the German bank’s website, there’s a shopping cart because they expect you to pay for some reports.  Remember these are the people from whom we expected a debt write-down.

One report which is free is a report today which provides an overview of the German economy. Thankfully there is an English version available here. The media is focusing on comments on the promissory note deal announced a fortnight ago, and this is what the Bundesbank has to say on the subject.

“At its latest meeting, the ECB Governing Council took note of the remarks by the Governor of the Central Bank of Ireland regarding the treatment of the state-owned Irish Bank Resolution Corporation (IBRC), which the Irish government had liquidated shortly beforehand. The Irish central bank had granted emergency liquidity assistance to IBRC and, following its liquidation, assumed full ownership of the relevant collateral. Among other things, the Irish government and central bank subsequently agreed that the Irish government’s promissory notes which formed part of the collateral would be exchanged for longer-term Irish government bonds with lower coupons. The Irish central bank ultimately pays interest on the new bonds to the rest of the Eurosystem at the main refinancing rate, while the Irish government’s interest payments are collected as net income by the Irish central bank and can be used for distributions to the government at a later date. This approach underlines the increasingly close and problematic ties between monetary and fiscal policy in the European monetary union. Responsibility for providing any assistance to individual member states in servicing their sovereign debts should lie with the European Stability Mechanism (ESM), which was established for this purpose”

What is worrying is that the Germans are members of the ECB Governing Council – see full list of members here – and as the ECB “unanimously took note” of the promissory note arrangement, there might be concern that “problematic ties between monetary and fiscal policy” mean there is pressure on the Irish government to dispose of the bonds used to swap with the promissory notes, on the open market sooner rather than later. Remember under the present arrangement, Ireland is paying a paltry 0.75% on the bonds used to swap with the promissory notes. But if €25bn of 2040 and 2053 bonds hit the sovereign bond markets tomorrow, the likelihood is that we would be paying 4%.

It seems however that there is no cast iron guarantee that Ireland can keep the bonds at the Central Bank at its discretion. In response to parliamentary questions from Sinn Fein and Fianna Fail last week, the Minister for Finance Michael Noonan used the same wording “The bonds will be placed in the Central Bank’s trading portfolio and sold as soon as possible, provided that conditions of financial stability permit.  The disposal strategy will maintain full compliance with the Treaty prohibition on monetary financing.”

We have no idea what Minister Noonan means by “financial stability” and the Bundesbank might have a different view to our own. So we might come under pressure to take the bonds out of the Central Bank sooner rather than later. If that happens then the NPV of the deal could dramatically fall from €6bn.

Advertisement

Share this:

  • Twitter
  • Facebook
  • Reddit

Like this:

Like Loading...

Related

Posted in Greece, IMF, Irish economy, Politics | 3 Comments

3 Responses

  1. on February 18, 2013 at 9:21 pm Dorothy Jones

    Well…Juergen Stark, chief economist Bundesbank, who followed Axel Weber[ex pres. Bundesbank and a memeber of ECB Board until Apr 2011] in stepping down from the Bundesbank in Sept 2011 because of unease with the ECB’s bond-buying polices has said openly this week that Ireland has broken the EU Rules – Article 123.
    http://www.telegraph.co.uk/finance/financialcrisis/9560102/ECB-in-panic-say-former-chief-economist-Juergen-Stark.html

    Weber’s successor Jens Weidmann was the only member of the ECB’s policy-setting governing council to vote against the bank’s programme in Sept 2012.

    Jens Weidmann was a pupil of Axel Weber in the University of Bonn and as they say here ‘Duzfreunde’. He is couching an opinion in more careful terms than Juergen Stark; but he/they is/are not happy.

    Now, in the neighbouring stable, Irish Economy, Colm McCarthy reponds to comments on his Article ‘Toxic Debt Scare’ at 18:31 130218 with ‘…of course the was a deal’
    http://www.irisheconomy.ie/index.php/2013/02/16/toxic-debt-scare/#comments

    Bundesbank caught on the hop on this one? With whom in the ECB was said deal made? It illustrates the ever-widening rift between Bundesbank and ECB/ EUCJ and German Constitutional Court.


  2. on February 18, 2013 at 9:48 pm Dorothy Jones

    A visual similarity between David Byrne in the ‘Stop Making Sense’ phase…

    …and Jens Weidmann in the ‘I want to make sense’ phase

    ?


  3. on February 19, 2013 at 12:49 am Grumpy

    NWL you have this correct. Give it a couple of weeks and the Sundays might get it straight too!



Comments are closed.

  • Recent Posts

    • Test – 12 November 2018
    • Farewell from NWL
    • Happy 70th Birthday, Michael
    • Of the Week…
    • Noonan denies IBRC legal fees loan approval to Paddy McKillen was in breach of European Commission commitments
    • Gayle Killilea Dunne asks to be added as notice party in Sean Dunne’s bankruptcy
    • NAMA sues Maria Byrne and Graham Byrne in Dublin’s High Court
    • Johnny Ronan finally wins a court case
  • Recent Comments

    Wisemama on Eddie Hobbs’s US “partner” fir…
    Dorothy Jones on Of the Week…
    Sean Bean on Eddie Hobbs’s US “partner” fir…
    John Foody on Of the Week…
    Wisemama on Eddie Hobbs’s US “partner” fir…
    otto on Of the Week…
    Frank Street on Of the Week…
    Wisemama on Eddie Hobbs’s US “partner” fir…
    John Gallaher on Of the Week…
    John Gallaher on Of the Week…
    who_shot_the_tiger on Eddie Hobbs’s US “partner” fir…
    Sean Bean on Eddie Hobbs’s US “partner” fir…
    otto on Of the Week…
    Brian Flanagan on Of the Week…
    Robert Browne on Gayle Killilea Dunne asks to b…
  • Twitter Updates

    • Funniest case in Irish legal history? 1. ex-Cllr Fred Forsey convicted of RECEIVING a corrupt payment 2. developer… twitter.com/i/web/status/1… 4 years ago
    • Really looking forward to this at 9pm tonight, esp the first Garda on the scene. Well worth reading this background… twitter.com/i/web/status/1… 4 years ago
    • Tea time on the day the president of the ECB tells us we [in Ireland] are paying more interest on our loans than th… twitter.com/i/web/status/1… 4 years ago
    • “I am grateful for you to refer to Mr Sugarman...on the specific question of Unicredit, responsibility at ECB lies… twitter.com/i/web/status/1… 4 years ago
    • @JMcGuinnessTD now confronts ECB about "the honest whistleblower" @WhistleIRL and his disclosures of liquidity issu… twitter.com/i/web/status/1… 4 years ago
    • Details, including court documents of class action in New York against Ryanair and CEO Michael O'Leary.… twitter.com/i/web/status/1… 4 years ago
    • Draghi tells @paulmurphy_TD the ECB doesn't remove govts, the people do, that's democracy. Bet the people will be m… twitter.com/i/web/status/1… 4 years ago
    • Wow! Draghi says there is no net interest cost for the Anglo bonds whilst they're held by the Irish central bank. T… twitter.com/i/web/status/1… 4 years ago
    Follow @namawinelake
  • Click on date for that day’s posts

    February 2013
    M T W T F S S
     123
    45678910
    11121314151617
    18192021222324
    25262728  
    « Jan   Mar »
  • Blog Stats

    • 5,113,858 hits

Create a free website or blog at WordPress.com.

WPThemes.


Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy
  • Follow Following
    • NAMA Wine Lake
    • Join 1,326 other followers
    • Already have a WordPress.com account? Log in now.
    • NAMA Wine Lake
    • Customize
    • Follow Following
    • Sign up
    • Log in
    • Copy shortlink
    • Report this content
    • View post in Reader
    • Manage subscriptions
    • Collapse this bar
 

Loading Comments...
 

    %d bloggers like this: