“We also think that when program countries are on the right track, they should receive support to help them regain market access and reduce dependence on official assistance” IMF managing director Christine Lagarde speaking in Dublin today
“You know that OMTs cannot be used to enhance a return to the market.” ECB president Mario Draghi speaking in Frankfurt on Thursday
Yesterday at the monthly ECB press conference, we were treated to some levity as ECB president Mario Draghi stated in all seriousness, that, because journalists had stopped asking him about Outright Monetary Transactions, that must mean that everyone now clearly understood what OMT was and especially what criteria had to be established before it could be offered by the ECB.
“OMT” by the way, is the new ECB wheeze whereby it will buy your country’s bonds at what should be a discount to the market rate, in other words, the ECB will offer cheap loans. Which is great, except everyone wants cheap loans, so the ECB has criteria for its OMT programme. Trouble is, none of us seem to precisely know what the criteria are.
Yesterday, President Draghi suggested that countries which were issuing long term bonds to a wide pool of investors for substantial sums would qualify. But of course, he didn’t specify what he meant by “long term”, “wide” or “substantial”, but he did say that OMT was not there to assist countries get back into the market after they had been locked out.
So, there, you have the ECB position.
This morning in Dublin, and not for the first time, the IMF has adopted a different position. IMF managing director, Madame Lagarde said
“Going further, Outright Monetary Transactions can help monetary policy work better and sustain fiscal adjustment efforts by reducing financing costs in countries facing severe market constraints. We also think that when program countries are on the right track, they should receive support to help them regain market access and reduce dependence on official assistance.”
Yesterday, the charmingly British reporter from the Financial Times suggested to President Draghi that many in the media didn’t understand the criteria that would apply to OMT, and he received a curt brush off for his troubles. But regardless of the precise criteria, it seems that the IMF takes a different view to that of the ECB on principle with the IMF seeing OMT as a facilitating scheme to get locked-out countries back in the open market, whilst the ECB seems implacable in its position that a country already be back in the market before OMT can be offered.
And this may become relevant to us quickly, because the funding from our Troika bailout comes to an end by December 2013. At this stage, we don’t know if our recent issuance of €2.5bn of 2017 bonds in January 2013 allowed us to meet the criteria for OMT. The NTMA CEO has indicated that Ireland may attempt to sell 10-year bonds into the market during the summer, but it is not satisfactory to be a member of a single currency scheme and not know the rules. No wonder, they are so resistant to adopting the euro across the water.
http://www.finanznachrichten.de/nachrichten-2013-03/26195735-lagarde-sieht-spielraum-fuer-ezb-zinssenkung-015.htm
Reports on Lagarde’s speech start to trickle through, showing Draghi and Lagarde at odds.
This follows on from a report on Mon 130304 in FAZ about dissatisfaction re the ECB role in the Troika and rumours of a possible exit in the aftermath of Ireland’s recent ‘deal’.
The higher level issue is democracy and the European elite’s disconnect from it, according to Walter Russell Mead:-
“Fewer and fewer voters want austerity policies (wisely or not), but no matter who they vote for, the European elite insists that the new politicians follow the same script as the ones who just lost the election. This turns democracy into a joke, which helps explains why the Italians voted for clowns…The elite looks at this landscape and thinks it is winning, that the patient is getting better…Europe boasted of being the world’s first truly post-historical society, but in many ways it has achieved something else: the world’s first “post-reality” elite, an elite which makes policy disconnected from the real world.”
See, http://blogs.the-american-interest.com/wrm/2013/03/08/europes-crisis-of-democracy/
Very interesting. For a simplistic but daily example of how citizens oppose this disconnect by the elite from reality, look at the kick back in comments when a Government camp follower spins a piece in the Irish Times. I wonder do the so-called elite look at this feedback or are they so superior that they just ignore it. For an example, look at the disconnect between the today’s IMF’s offer to help Ireland and the response from readers at http://www.irishtimes.com/newspaper/breaking/2013/0308/breaking4.html
Fortunately, we still have the freedom to bring the elite down to earth via the ballot box notwithstanding that that the Government would like to see one arm of our democracy, the Seanad, extinguished.
That link to the Irish Times report is broken now – maybe the readers’ comments were proving an embarrassment.
The new look for the Times website is a bit flashy too. Reminds me more of a glossy lifestyle magazine than a supposed ‘paper of record’.
The new IT layout is awful especially on a smartphone – too many pictures etc. which destroy the flow of text and consume screen space. Also, many of the links in menus are to items that are a few days old. The latter complaint also applies to the Indo but at least they have not flooded their home page with graphics etc. The Examiner has the most friendly layout IMHO.
Agreed. The IT should have copied the Examiner instead of the Indo.
regarding democracy becoming a joke, we now have a hung parliament in the country that gave us the Statue of David…
http://www.faz.net/aktuell/feuilleton/wege-des-geldes-dispokratie-12106343.html
Some people are now telling the truth in Germany about just what is happening in the ECB. One of the most honest articles here 130307 in FAZ by Patrick Bernau ‘Dispokratie':
– ECB is lending billions to Central Banks since the crisis through mechanisms on the financial markets
– The decision-making process in the red conference room on 1st floor ECB involving a Guido Della Valle is outlined
– No Bank should go bust, the interest rate is low and they will gat as much credit as they ask for.
But where is the money going? Benau takes Offenbach as a typical example; a backwater not far from Frankfurt. In Offenbach even the low interest rate isn’t helping the town to fund it’s own repair, maintenance and development programme despite the Mayor’s atttempt to fund regeneration in advance. The associated additional tax income would fill less than a tenth of the town’s deficit.
Empty sites, derelict buildings and defunct factories are a prt of the town’s landscape.
ECB Director Benoit Coeure who is responsible for lending to Central Banks sees it positively that the Banks can lend again; despite the property boom.
However; in reality, the money is not going to firms, or to new business seed projects, and in turn jobs are not being created. The money is staying in the system; but in shares and gold and property. Nowadays Banks in Germany wish to lend for property investment under easier conditions; the bubble has been created…..
IMF and ECB tension over ECB role set to increase.
Ah, the supine Irish – paying 42% of the cost of the european bank bailout. It’s no wonder we are regarded as a “compliant” program country and “on the right track” by our european “partners”. What gobshites we are as a nation. And finally, Noonan admits his amateur status and lack of knowledge as Minister Finance when first elected – Talk about understatement!
Confession of the week: From the Independent: “Finance Minister Michael Noonan thanked Ms Lagarde for her help when she was a finance minister and he was an “inexperienced” counterpart.”
NWL, how come no comment on NAMA staff having to take a pay cut?
Do you agree? Is the saving in salary going to be less than the income NAMA will forego by the inevitable reduction of effort by NAMA staff?
ECB Website Statement on OMTs in September:
http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html
“They may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access. ”
???
It seems patently obvious that OMTs can be used to help a programme country return to the market.
I have no idea what Draghi is getting at here.
ECB lost it’s marbles at this stage? German press reporting this morning after decision last night 130315 on Cyprus to leave bondholders untouched but deciding that depositors must step up to ther plate???? Wealthy Russian bondies having a laugh at this. Mad stuff. Wolfgang Schäuble German FinMin behnd the decision:
http://www.faz.net/aktuell/wirtschaft/europas-schuldenkrise/zypern/verhandlungen-ueber-hilfspaket-geld-von-zyperns-banken-gesucht-12116554.html