You might have thought that after our issuance on 13th March 2013 of €5bn of 10-year bonds to a wide range of investors, that we had finally met the criteria to gain access to the ECB’s lending scheme to member states. Seems it still isn’t clear-cut.
Before the latest Cyprus fiasco, the general consensus is the ECB halted the instability and placed the EuroZone on a more certain footing last summer when it announced on 26th July 2012 that it would do “whatever it took” to protect the euro. As a practical expression of its intentions, the ECB announced on 6th September 2012 a scheme known as “Outright Monetary Transactions” where it committed to buy the sovereign bonds of member states, a buyer of last resort if you will, but that convinced the markets that member states couldn’t be spooked by market speculators and the like, and the practical result is that yields on member states declined markedly. In Ireland’s case, our benchmark 2020 bond came down from a notional interest rate of 6.23% in July 2012 to 3.69% today.
As Ireland’s bailout from the IMF, EU and ECB is coming to end this year, we are keenly interested in whether we qualify for the OMT scheme just in case there are some jitters, for example if and when Cyprus leaves the euro in a week or two. ECB president Mario Draghi seems to think that the criteria for accessing OMT are perfectly clear; in fact, he told a news conference earlier this month that because the media had stopped asking him about OMT, he assumed everyone understood the criteria for accessing OMT. A very polite man from the Financial Times disabused him of that belief when he asked
“Mr Draghi, you have just said that we know the rules on OMTs. I do not think I am alone in saying that, actually, I do not think we do. The only thing you have published that I am aware of is an approximately 440-word statement that you read out to us in September; other than that it feels a bit like we are slowly piecing together the picture. Would you consider giving us, at some point, a full, written, point-by-point document stating how it works, what a country must do, etc., or is this a deliberate policy to keep it a little bit vague?”
But Mario Draghi went on to say that the criteria would be met if significant sums of long term bonds were sold to a wide audience. He specifically said that OMT was not there to assist countries in returning to the market, they must have actually returned to the markets before they would meet the criteria.
So, with Ireland selling €5bn of 10-year bonds to a market which according to the NTMA was “18 per cent [..] taken up by domestic investors and 82 per cent by overseas investors. The overseas investors were mainly from the U.K. (25%), Germany (12%), the Nordic region (12%), France (11%) and the U.S. (7%)”, has Ireland now met the criteria.
Minister for Finance Michael Noonan isn’t saying.
In response to a question from the Sinn Fein finance spokesperson Pearse Doherty this week, Minister Noonan rambled on practically incoherently and ultimately said that it was the ECB which would decide if we had met the criteria.
The full parliamentary questions and response are here.
Deputy Pearse Doherty: asked the Minister for Finance if he has confirmed with the European Central Bank, that in view of the recent issuance of €5bn of 10-year bonds to a wide range of investors, that Ireland now qualifies for access to the ECB’s outright monetary transaction scheme.
Deputy Pearse Doherty: asked the Minister for Finance his assessment on whether this State now meets the criteria for access to the ECB’s outright monetary transaction scheme, following the recent issuance of €5bn of 10-year bonds to a wide range of investors.
Minister for Finance, Michael Noonan: I propose to take Questions Nos. 94 and 95 together.
In my reply to the Deputy’s Question No. 211 of 12 February last, I set out the principal criteria for the ECB’s Outright Monetary Transactions (OMTs) as set out in its press statement of 6 September 2012. Those criteria have not changed. It is clear is that the ECB will decide on the application of OMTs in any particular circumstance to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected, and terminate them once their objectives are achieved or when there is non-compliance with the macroeconomic adjustment or precautionary programme. It is also clear that the ECB’s Governing Council will decide on the start, continuation and suspension of OMTs, following a thorough assessment, in full discretion and acting in accordance with its monetary policy mandate. I believe the ECB’s announcement regarding its OMT programme is a significant development and is viewed as such by the financial markets. We are in the final year of our EU-IMF programme. Our focus is firmly fixed on a successful and durable exit from the programme. The recent highly successful sale of long-term bonds by the NTMA is another very significant step in this process. We continue to assess a number of options in this regard. However, we must respect the fact that the decision on whether to grant OMTs or otherwise in any particular case is a matter for the ECB.