IMF continues to clash with the ECB on policy

“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.

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