Trichet letter

efb

From the heavy hand of the Church to the heavy hand of the EU. Did we ever have self determination???

http://www.irishtimes.com/business/economy/jean-claude-trichet-letter-to-brian-lenihan-1.1989801?utm_source=dlvr.it&utm_medium=twitter

Sand

A *lot* of damage control is going to have to be run over the next few days on the contents of that letter if the image of the ECB as a calm, paternal and neutral shepard in the crisis is to be maintained.

The ECB had no right to make its support for ELA dependant on a particular course of action from the government. It abused its powers to bully a small and weak state in a way it is not permitted to do so.

_Kaiser_

efb wrote: »

From the heavy hand of the Church to the heavy hand of the EU. Did we ever have self determination???

Short answer: No, not really.

Longer answer: No, not really. I really believe that there is a sizable part of our population out there that NEED to be told what to do by a "ruling class" (whether it be first the English, then the Church, and now the EU).

Maybe it's because it's ingrained into our culture at this stage, maybe it's because we need "someone else" to blame, or maybe it's because we're just too lazy and feckless, or maybe it's because we're taught as kids about the "poor down-trodden Irish" that we think that's all we can aspire to.

Whatever the cause, history has shown that as soon as we get a whiff of self determination we can't wait to pass it off to others - despite the fact that each time it's ended in disaster for the country/people.

But despite this, "we" still take no interest in how the place is run until it affects us personally. This creates an enormous vacuum in the political process where TDs and state bodies are given the run of the place with no oversight or accountability to anyone - small wonder then that inefficiency, waste and corruption sets in really.

To bring this back to the topic at hand though, the EU however is the ultimate expression of these faceless, unaccountable "overlords". Most Irish people are disengaged from local and national politics - they certainly don't know about or even give a toss about what happens in Brussels. I'd wager if you did a survey on Grafton St tomorrow most people couldn't name Ireland's MEPs, or even coherently describe the governing structure. Probably all you'd get is a few regurgitated soundbites from "celebrity" economists and commentators.

So while this blackmailing of the previous government and our country will get a good few column inches and news bulletins over the next few days, I wouldn't be expecting any significant changes or resistance - everyone is too busy with the IW farce anyway - and again, it'll be left to "others" to sort out. Others like our "Truly madly, deeply European" and indeed former "European of the Year" Enda Kenny.

Until this changes, until we start taking an active interest in how this country (and the EU) is run, we will continue to alternate between whipping boys and poster boys for the latest destructive policy .. because why WOULD/SHOULD it be any different?

20Cent

So the famous letter from Jean-Claude Trichet to Brian Lenihan has been leaked at last. Proof the ECB explicitly threatened and bullied Ireland into the bailout. What was suspected all alone but this is the smoking gun additional documents now need to be aslo released.
The ECB clearly overstepped their authority, mandate and powers time for a visit to the European Court of Justice.

http://www.irishtimes.com/news/ireland/irish-news/trichet-letter-revealed-ecb-threatened-to-stop-emergency-funding-unless-ireland-took-bailout-1.1989869


Text of letter:
http://www.irishtimes.com/business/economy/jean-claude-trichet-letter-to-brian-lenihan-1.1989801

BoJack Horseman

Were the ECB obliged to provide support for the pillar banks?

If so, then their threat was certainly wrong.

doubter

no, ECB was not obliged to support any bank. They only did what any good credit manager would do, limit the risk.You don't throw good money after bad.The government was solely concerned about their own pockets and re-election, that why they tried to hide everything for so long. ECB should have done this a lot sooner, it would not have been as bad.
When it comes to this decision and the pressure put on the Ig, I fully support ECB. Had they not, we'd still be firefighting.

BoJack Horseman

So they weren't obliged to continue putting in money.

The shoddy FF gov finances had collapsed & so had no money to continue & the thought of borrowing at 8-10% unfeasible.

Was the bailout the only option?

Was this letter simply part of the inevitable?

doubter

I think it was certainly inevitable at that point.
The road was pretty much paved when the IG started putting billions into AA bank.That wasn't sustainable

Godge

The road to the bailout started in September 2008 when Cowen and Lenihan at the advice of McWilliams guaranteed the banks. They did this without telling anyone in Europe and within days other EU member states had to follow Ireland's lead as money was flowing into Ireland because of the ill-thought out guarantee.

Once Ireland's gamble failed, which it did with the collapse of Anglo, do you think there was any goodwill left for Ireland after their go-it-alone policy had caused so much trouble for everyone else?

We brought this down upon ourselves.

Manach

Once there is precedent for bailing out one set of finical institutions, then this will continue to be the case for future cases. Not only is the money misspend in supporting profligacy it will also underline the freedom from failure that the institutions enjoy now and for generations to come.

doubter

Agree.always was delighted with Iceland who jailed the bankers

20Cent

The ECB essentially forced Ireland to turn private debt into public debt.

BoJack Horseman

20Cent wrote: »

The ECB essentially forced Ireland to turn private debt into public debt.

Did they?

As has been noted, the ECB were under no obligation to keep pouring money into supporting Irish banks.

doubter

20Cent wrote: »

The ECB essentially forced Ireland to turn private debt into public debt.

actually the IG did that when guaranteeing for the bloody banks

Fr Tod Umptious

20Cent wrote: »

The ECB essentially forced Ireland to turn private debt into public debt.

Was the conversion from private debt to public debt not done when the Irish Govt. guaranteed the banks and pumped capital into them ?

The Troika bailout was the best thing that happened to this country.

It allowed us to restructure our debts at the much more sustainable rate and reign in spending.

It puts us back on track.

God only know here we would have been without it, Argentina ?

Godge

20Cent wrote: »

The ECB essentially forced Ireland to turn private debt into public debt.

No, the ECB forced Ireland to take responsibility for its previous actions.

Take 20cent junior who spills permanent ink on his clothes. He tries to clean it up himself without telling anyone else and makes a further mess causing problems with the washing machine. 20cent daddy makes him pay for new clothes from 20cent junior's pocket money. Theoretically 20cent senior could have cut pocket money for all 20cent daddy's children and bought new clothes just for 20cent junior out of the money saved but that would have let 20cent junior off the hook for his actions (and he wasn't a toddler, he was 12, still very juvenile but should have known better). And 20cent daddy also has to fix the washing machine.

20cent junior is now upset that he had to use his pocket money for new clothes while his siblings got to buy sweets and toys.

Essentially Ireland is 20cent junior and the ECB is 20cent daddy.

doubter

Godge wrote: »

No, the ECB forced Ireland to take responsibility for its previous actions.

Take 20cent junior who spills permanent ink on his clothes. He tries to clean it up himself without telling anyone else and makes a further mess causing problems with the washing machine. 20cent daddy makes him pay for new clothes from 20cent junior's pocket money. Theoretically 20cent senior could have cut pocket money for all 20cent daddy's children and bought new clothes just for 20cent junior out of the money saved but that would have let 20cent junior off the hook for his actions (and he wasn't a toddler, he was 12, still very juvenile but should have known better). And 20cent daddy also has to fix the washing machine.

20cent junior is now upset that he had to use his pocket money for new clothes while his siblings got to buy sweets and toys.

Essentially Ireland is 20cent junior and the ECB is 20cent daddy.

BEST EXPLANATION EVER!!

20Cent

Godge wrote: »

No, the ECB forced Ireland to take responsibility for its previous actions.

Take 20cent junior who spills permanent ink on his clothes. He tries to clean it up himself without telling anyone else and makes a further mess causing problems with the washing machine. 20cent daddy makes him pay for new clothes from 20cent junior's pocket money. Theoretically 20cent senior could have cut pocket money for all 20cent daddy's children and bought new clothes just for 20cent junior out of the money saved but that would have let 20cent junior off the hook for his actions (and he wasn't a toddler, he was 12, still very juvenile but should have known better). And 20cent daddy also has to fix the washing machine.

20cent junior is now upset that he had to use his pocket money for new clothes while his siblings got to buy sweets and toys.

Essentially Ireland is 20cent junior and the ECB is 20cent daddy.

weird! Analogies generally aren't very useful for explaining international finance.

Godge

20Cent wrote: »

weird! Analogies generally aren't very useful for explaining international finance.

doubter wrote: »

BEST EXPLANATION EVER!!

That one works very well.

BoJack Horseman

20Cent wrote: »

weird! Analogies generally aren't very useful for explaining international finance.

Next time your young'un acts up you can bewilder him by exclaiming "This is just like the 2010 bailout all over again!"

Godge

But the shareholders were wiped in Ireland as well. Nothing different to what was done in Portugal.

eigrod

Godge wrote: »

No, the ECB forced Ireland to take responsibility for its previous actions.

Take 20cent junior who spills permanent ink on his clothes. He tries to clean it up himself without telling anyone else and makes a further mess causing problems with the washing machine. 20cent daddy makes him pay for new clothes from 20cent junior's pocket money. Theoretically 20cent senior could have cut pocket money for all 20cent daddy's children and bought new clothes just for 20cent junior out of the money saved but that would have let 20cent junior off the hook for his actions (and he wasn't a toddler, he was 12, still very juvenile but should have known better). And 20cent daddy also has to fix the washing machine.

20cent junior is now upset that he had to use his pocket money for new clothes while his siblings got to buy sweets and toys.

Essentially Ireland is 20cent junior and the ECB is 20cent daddy.

Very good analogy. I would add one piece to it, that 20cent junior hasn't stopped crying since the whole sorry saga and blames 20cent daddy because it was 20cent daddy who bought him the clothes in the first place and if he hadn't bought him the clothes, this would never have happened.

BoJack Horseman

Gov pending topped out at €63bn in 2009
This year it will be €54.

You can't say its barely been touched.
This 15% reduction has come with massive political unpopularity.


The deposit guarantee scheme did this job without adding to national debt.
The cost were born by the banks.

Laois_Man

Godge wrote: »

guaranteed the banks. They did this without telling anyone in Europe

That is not true!

Scofflaw

Ireland had already turned private debt into public debt - before this letter, and before the bailout:

1. Anglo-Irish was nationalised in early 2009, after the government had injected €4bn via the NPRF in return for shares: http://debates.oireachtas.ie/seanad/2009/01/20/00007.asp

2. the majority (€21.48bn) of the €30.6bn provided to Anglo/INBS was already provided by the time of the letter, and the government was committed by virtue of nationalisation to the remaining capital requirements in any case: http://debates.oireachtas.ie/dail/2011/10/13/00051.asp

3. the government bought into AIB and BOI in 2009 to the tune of €7bn via the NPRF, and into AIB again in mid 2010 to the tune of €3.7bn in shares and via promissory notes to the tune of €0.9bn

4. AIB was nationalised in September 2010, again before the bailout and the letter.

Of the eventual €64bn cost of the bailout, €46bn was committed before the letter and the bailout, including the total amount committed to Anglo. The rest was committed after the PCAR 2011 bank stress tests, and consisted almost entirely of money for AIB, which, again, the government was already committed to through the nationalisation in September 2010:

€bn |AIB/EBS |BoI |IL&P |IBRC (Anglo/INBS) |Total
|€bn |€bn |€bn |€bn |€bn
Government preference Shares (2009) — NPRF |3.5 |3.5* |— |— |7.0
Capital contributions (with Promissory Notes as consideration) /Special Investment Shares (2010) — Exchequer ** |0.9 |— |— |30.7 |31.6
Ordinary Share Capital (2009) — Exchequer |— |— |— |4.0 |4.0
Ordinary Share Capital (2010) — NPRF |3.7 |— |— |— |3.7
Total pre-PCAR 2011 (A) |8.1 |3.5 |0 |34.7 |46.3
|||||
PCAR 2011: |||||
Capital from Exchequer*** |3.9 |— |2.7 |— |6.5
NPRF Capital |8.8 |1.2 |— |— |10.0
Total PCAR (B) |12.7 |1.2 |2.7 |— |16.5
Total Cost of Recap for State (A) + (B) |20.7 |4.7 |2.7 |34.7 |62.8

http://debates.oireachtas.ie/dail/2012/04/18/00157.asp

Ireland, in late 2010, was in a position of having already either paid huge amounts of money for the bank bailouts, or committed itself to them through nationalisations. It had also committed itself to guaranteeing at least another €20bn in senior bonds in those banks under the ELG.

While the government at that point was funded for ordinary operation for six months if it chose to run down entirely all its cash holdings, it had no hope of borrowing from the markets at any reasonable rate, and still huge liabilities in the banks, which were at that point being funded to the tune of €130bn by the ECB and CBI - €88bn ECB, €42bn CBI.

Ireland had no plan to replace this central bank funding, representing a third of the ECB's total lending at a time when the banking system all round the eurozone needed ECB support, and no plan to wind it down. They had no even plan for forward funding of the State, let alone how the State would deal with the huge quantities of money the banks were soaking up. They had no plan for restructuring and deleveraging the banks. They seem to have assumed that they could go on kicking the can down the road, with the ECB pouring money into the can for them.

The letter essentially called time on that happy prospect. It required Ireland to get what funding it needed together without relying on the markets, and get a plan together for restructuring and deleveraging its banks rather than either continuing to use the ECB's money to prop them up as they were.

What it didn't do was commit Ireland to anything it had not already committed itself to. It just required it to be organised about it, rather than continuing the policy of kicking the can at other people's expense.

cordially,
Scofflaw

Godge

Laois_Man wrote: »

That is not true!

http://www.rte.ie/news/2008/0930/108605-economy/

The EU will examine it - after it has happened.

http://www.independent.ie/irish-news/remember-how-ireland-was-ruined-by-bankers-26695060.html

It was the bankers and McWilliams who told Cowen and Lenihan what to do, not the EU.


http://www.finfacts-blog.com/2010/11/irish-state-bank-guarantee-and-arrival.html

The link between September 2008 and the bailout.

http://www.shaneross.ie/the-bankers-2-2/

Even Shane Ross says it:

"The combined wisdom of Ireland’s top politicians and civil servants quickly settled on the cleanest choice. The Government would guarantee all the liabilities — the customer and interbank deposits, and also the vast majority of bonds — of the six Irish banks. This solution had already been canvassed by David McWilliams and Dermot Desmond."


We brought the whole lot upon ourselves.

Scofflaw

Laois_Man wrote: »

That is not true!

It is true. The guarantee was announced as a fait accompli and without prior warning to the rest of the EU.

cordially,
Scofflaw

BoJack Horseman

Scofflaw wrote: »

Ireland had already turned private debt into public debt - before this letter, and before the bailout:

Fantastic post Scofflaw.

Should be seen beyond this forum.

Unshelved

Well done Scofflaw - excellent post.

K-9

20Cent wrote: »

The ECB essentially forced Ireland to turn private debt into public debt.

The ECB was giving the Irish banks a credit lifeline, if they'd defaulted obviously the ECB would be affected!

I'm kind of reminded of the Apres match Browne sketch on Lenihan:

"What's the plan about the debt?"

"We're hoping they'll knock a few zeros off".

https://www.youtube.com/watch?v=WHTNTptUEe8

K-9

Merged thread from the politics cafe into existing thread in politics. Please be aware of the new charter.

FreudianSlippers

I actually don't see much of a problem with the letter. It fairly and clearly states that:

1) Ireland (unilaterally) offered ELA to its banks (which it shouldn't have in the case of Anglo, as the ELA monetary policy clearly states that the financial institution must be solvent);
2) As a result of the ELA being offered across all financial institutions in Ireland, there is huge exposure across the Eurosystem;
3) It's fairly clear that the ELA didn't work and that there is an imminent bank failure;
4) If you want more ELA you need to do (1-4 of the letter).

I do believe, however, that the ECJ should consider the letter and put the matter to bed.

Rightwing

The ECB bullied Ireland in the sense that it placed severe tests on the banks which were quite frankly outrageous. BKIR shareholders can consider themselves hard done by.

Icepick

Rightwing wrote: »

The ECB bullied Ireland in the sense that it placed severe tests on the banks which were quite frankly outrageous. BKIR shareholders can consider themselves hard done by.

Grow up and take responsibility = hard done by

Bank shateholders were deservedly wiped out. That certain bond holders should have been as well is another problem.

Also the stupidity and hubris of Cowen, Lenihan and others when deciding to cover everything should not be forgotten.

View

Rightwing wrote: »

The ECB bullied Ireland in the sense that it placed severe tests on the banks which were quite frankly outrageous. BKIR shareholders can consider themselves hard done by.

Since when did being solvent qualify as an "outrageous" condition?

Kermit.de.frog

There is nothing to these letters at all. Trichet was merely stating the obvious. Ireland was bust. Ireland needed help as quickly as possible to avoid further catastrophic damage. People with responsibility in times of crisis have to be direct and clear in their communications. No smoking gun in my opinion.

Rightwing

Icepick wrote: »

Grow up and take responsibility = hard done by

Bank shateholders were deservedly wiped out. That certain bond holders should have been as well is another problem.

Also the stupidity and hubris of Cowen, Lenihan and others when deciding to cover everything should not be forgotten.

View wrote: »

Since when did being solvent qualify as an "outrageous" condition?

You need to learn to be able to distinguish and differentiate.

The scope of the post may be beyond the politics forum.

dlouth15

FreudianSlippers wrote: »

3) It's fairly clear that the ELA didn't work and that there is an imminent bank failure;

Which bank is this? AIB?

Sand

I was right, damage control time.

@Kaiser

I really believe that there is a sizable part of our population out there that NEED to be told what to do by a "ruling class" (whether it be first the English, then the Church, and now the EU).

True, and that lack of self confidence is evident in several contributions to the the thread. If you believe good governance and good outcomes are achieved by superior powers (ECB for example) threatening and intimidating inferiours (Irish government), then you really aren't going to find anything objectionable in the letter. I wasn't surprised to find one or two of the supporters of the whip in the Dail defending Trichet here for example - this is just the next level up of that particular strategy for good governance.

@Bojack

Were the ECB obliged to provide support for the pillar banks?

No, not obliged but they're supposed to make the decision on its own merits. They should not abuse their powers to influence a particular course of action. For example: a Judge is not obliged to find in your favour in a court case. It would be completely wrong for that judge to make finding in your favour dependant on you giving him a bribe.

There are questions for the ECB to answer here as to if they abused their powers to dictate policies to a government.

@Godge

That one works very well.

No, analogies are pretty bad. All they are useful for demonstrating is the givers own bias. In this case Ireland is assigned the role of the silly child. The ECB takes on the role of the firm but fair father. Right from the start reality is thrown out. The ECB practically created the Eurozone crisis trying to rescue itself from its failed and stupid policies in Greece (as bad or worse than any stupidity the Irish government got up to), and calm was only restored after Trichet left. But you portray them as a wise and paternal figure with the childs best interests at heart - when they were and are anything but.

All analogies do is reveal bias by who is assigned the "good" role and who is assigned the "bad" role, when the reality is much less clear cut.

No, the ECB forced Ireland to take responsibility for its previous actions.

It is not their role to do so. It is not their role to dictate particular solutions or courses of actions to a government. It is not their role to rule out particular courses of action.

Governments govern with a mandate from their people. The ECB has a mandate from nobody. The ECB is very prickly about defending its independence and powers: they were very happy to abuse their powers to essentially determine Irish government policy.

@Scofflaw

While the government at that point was funded for ordinary operation for six months if it chose to run down entirely all its cash holdings, it had no hope of borrowing from the markets at any reasonable rate

Certainly not with the ECB deliberately and publicly briefing against Ireland to cause fear and confusion in the markets regarding Ireland.

I thought this quote from Trichets letter to Lenny was quite blatant

I am sure that you are aware that a swift response is needed before markets open next week, as evidenced by recent market tensions which may further escalate, possibly in a disruptive way, if no concrete action is taken by the Irish government on the points I mention above.

Message received and understood.

@K9

The ECB was giving the Irish banks a credit lifeline, if they'd defaulted obviously the ECB would be affected!

Exactly true and that was the ECBs only motivation with regard to Ireland. Anyone who thinks the ECB was in any way trying to achieve a good or even neutral outcome for Ireland is mistaken. The ECB abused its powers to force a particular course of action on Ireland that was in the ECBs perceived benefit.


EDIT: I just find it remarkable that Irish people in particular have a fairly immature view of the EU and various European institution. On the one hand, it's viewed as a terrible, malign, oppressive force. This is similar to the UK, but what makes Ireland unique is that there is also this constituency with unquestioning trust in the EU with regard to its dealings with Ireland. That the EU is always right, that the EU is kind and just. It's the Nixon defence: if the EU does it, it cant be wrong. These people would happily remove any democratic mandate from the Irish people in the belief that diktats from Brussels would by their very nature be superior than anything Irish democracy could provide.

There's a clear "constitutional" issue here, where the ECB made and explicit link between its policies for particular banks and a particular governments policy. Nobody seems interested - its either "EU is evil!" or "EU is wonderful and shure didn't we only deserve it!" type responses.

nice_guy80

The folly of the bank guarantee by FF is what really doomed Ireland.

FreudianSlippers

I'm not sure I see the "clear" constitutional issue tbh. Not disagreeing necessarily, just wondering what you mean exactly.

Sand

FreudianSlippers wrote: »

I'm not sure I see the "clear" constitutional issue tbh. Not disagreeing necessarily, just wondering what you mean exactly.

I stated it several times in my post. The ECB made its support for certain banks dependant on a particular government (Ireland) carrying out specific policy actions. This is different to the ECB changing its policies on ELA across the Eurozone, that Irish banks may or may not meet. The ECB has significant, exceptional powers - it was not granted them to use them for its own ends or to use them to subvert governments with a democratic mandate. "Give me control of a nation's money and I care not who makes it's laws".

Colm McCarthy referred to this point as well, stating that the government could and should have referred the matter to the ECJ to make a decision on if the ECB breached the limits on its powers. Putting aside all the parochial Irish issues, there is a constitutional issue where a very powerful institution without a mandate has used its powers to force a policy on an elected government of a member state without having any expertise or right to do so.

Scofflaw

The ECB has no mandate to interfere in a country's internal governance, but is entitled to set any conditions it likes on assistance it's not obliged to provide. Describing this as a "breach of powers" is ridiculous, because no powers were used except the ability to offer something with conditions. And you'll note that the fact that the ECB has the power to set conditions on such aid is carefully spelled out in the letters:

As you are aware from my previous letter dated 15 October, the provision of Emergency Liquidity Assistance (ELA) by the Central Bank of Ireland, as by any other national central bank of the Eurosystem, is closely monitored by the Governing Council of the European Central Bank (ECB) as it may interfere with the objectives and tasks of the Eurosystem and may contravene the prohibition of monetary financing.

Therefore, whenever ELA is provided in significant amounts, the Governing Council needs to assess whether it is appropriate to impose specific conditions in order to protect the integrity of our monetary policy. In addition, in order to ensure compliance with the prohibition of monetary financing, it is essential to ensure that ELA recipient institutions continue to be solvent.

It set the conditions for its assistance - a 3-year bank seat on the board of Ireland Inc, an agreed restructuring plan, and sufficient funding guaranteed to cover operating costs during that time - Ireland took them.

I recall suggesting at the time that FF's plan was to have the ECB look after the banks while it swanned on, and I think that was indeed the plan. The ECB was acting to protect the extraordinary amount of liquidity it was providing to the Irish banking system against a government which was apparently paying only lip service to the idea of actually doing anything meaningful, by making meaningful action a condition of further funding. Perhaps I'm strange in not finding that outrageous, but decisions, including the decision to do nothing much in a crisis, have consequences, and not only for the person deciding.

Is it your view that the ECB should have continued to provide massive liquidity to the Irish banks without any conditions?

cordially,
Scofflaw

Godge

Scofflaw wrote: »

The ECB has no mandate to interfere in a country's internal governance, but is entitled to set any conditions it likes on assistance it's not obliged to provide. Describing this as a "breach of powers" is ridiculous, because no powers were used except the ability to offer something with conditions. And you'll note that the fact that the ECB has the power to set conditions on such aid is carefully spelled out in the letters.

It set the conditions for its assistance - a 3-year bank seat on the board of Ireland Inc, an agreed restructuring plan, and sufficient funding guaranteed to cover operating costs during that time - Ireland took them.

Once again we appear to be at the bit where a decision having unpleasant consequences is an outrageous imposition on freedom.

cordially,
Scofflaw

No matter what you or anyone else says, it seems there is a large minority of Irish people who love to be the victim and refuse to take responsibility for their actions.

Frank Lee Midere

Scofflaw wrote: »

The ECB has no mandate to interfere in a country's internal governance, but is entitled to set any conditions it likes on assistance it's not obliged to provide. Describing this as a "breach of powers" is ridiculous, because no powers were used except the ability to offer something with conditions. And you'll note that the fact that the ECB has the power to set conditions on such aid is carefully spelled out in the letters.

It set the conditions for its assistance - a 3-year bank seat on the board of Ireland Inc, an agreed restructuring plan, and sufficient funding guaranteed to cover operating costs during that time - Ireland took them.

Once again we appear to be at the bit where a decision having unpleasant consequences is an outrageous imposition on freedom.

cordially,
Scofflaw

The question is would they have done this to Germany were a verbal guarantee made, foolishly, by Germany to its banks if Germany could instead have reneged on that by burning the bondholders of the periphery. The answer is no.

The ECB is in it's miserable existence is the worst central bank in the history of capitalism. Run and divised by intellectual midgets, riddled with division, prone to the national interests of the centre. Keeping interest rates too low during an historic housing boom in its periphery, then going Austrian school in a Great Recession while run by a Frankish Teuton, until upon the passing of the baton to an Italian it implements an utterly timid version of QE which is neither stopping deflation nor halting a slide into another historic event, a triple dip recession. We'll be lucky to end this decade mildly poorer than when we started the Euro project.

The general sentiment here is that the childish Irish needed adult supervision, I'm pretty certain that the adults needed adult supervision.

Frank Lee Midere

Godge wrote: »

No matter what you or anyone else says, it seems there is a large minority of Irish people who love to be the victim and refuse to take responsibility for their actions.

The Irish were partially responsible for the housing boom. The major factor was over loose credit. Which is fairly obvious because the housing collapse was not confined to Ireland.

Had we the punt we would be in better shape.

marienbad

Frank Lee Midere wrote: »

The question is would they have done this to Germany were a verbal guarantee made, foolishly, by Germany to its banks if Germany could instead have reneged on that by burning the bondholders of the periphery. The answer is no.

The ECB is in it's miserable existence is the worst central bank in the history of capitalism. Run and divised by intellectual midgets, riddled with division, prone to the national interests of the centre. Keeping interest rates too low during an historic housing boom in its periphery, then going Austrian school in a Great Recession while run by a Frankish Teuton, until upon the passing of the baton to an Italian it implements an utterly timid version of QE which is neither stopping deflation nor halting a slide into another historic event, a triple dip recession. We'll be lucky to end this decade mildly poorer than when we started the Euro project.

The general sentiment here is that the childish Irish needed adult supervision, I'm pretty certain that the adults needed adult supervision.

Why can't it be both ? The ECB are fcuk ups and we are fcuk ups ?

Sand

Scofflaw wrote: »

The ECB has no mandate to interfere in a country's internal governance, but is entitled to set any conditions it likes on assistance it's not obliged to provide.

ELA is within the remit of the Central Bank of Ireland. The ECB does not grant it. The Central Bank does. Any costs of, and the risks arising from, the provision of ELA are incurred by the relevant NCB. The ECB has the ability to veto ELA where "it considers that these operations interfere with the objectives and tasks of the Eurosystem" and it needs a two thirds majority to do that. Therefore if Trichet wanted to cut off ELA he should have put together a case to show that the ELA in Ireland was interfering in the objectives and tasks of the Eurosystem...of which the amount of ELA was a *very* small fractional percentage of the overall Eurozone.

Not really a strong case, without setting dangerous precedent s for the entire Eurozone. But that would have been totally fine if the ECB wanted to set that precedent.

Instead, they didn't do that, they instead made an explicit threat that unless Ireland followed specific policies, set out by the ECB, that they would use their power to veto the ELA. That's different to setting a broad policy which is the same for all members: it is using its powers selectively against a single member state.

It set the conditions for its assistance - a 3-year bank seat on the board of Ireland Inc, an agreed restructuring plan, and sufficient funding guaranteed to cover operating costs during that time - Ireland took them.

I suppose a mugging is also an agreed exchange by that definition. The mugger doesn't *have* to let the victim live. The mugger sets their conditions for release of the victim: their wallet, their phone, their watch. The victim takes them. A fair and equitable deal which the victim agreed to.

I recall suggesting at the time that FF's plan was to have the ECB look after the banks while it swanned on, and I think that was indeed the plan. The ECB was acting to protect the extraordinary amount of liquidity it was providing to the Irish banking system against a government which was apparently paying only lip service to the idea of actually doing anything meaningful, by making meaningful action a condition of further funding. Perhaps I'm strange in not finding that outrageous, but decisions, including the decision to do nothing much in a crisis, have consequences, and not only for the person deciding.

No its very predictable that you don't find it outrageous. The governments policy decisions are the remit of the government. It is not for the ECB to use its powers to force the government to do anything, on any schedule that suits the ECB.

Is it your view that the ECB should have continued to provide massive liquidity to the Irish banks without any conditions?

It's my view that the ECB should have focused on their job, and the government should have focused on theirs.

As much as ELA is demonised as this totally unacceptable "solution", the ECB is currently dumping massive amounts of liquidity into Eurozone banks using means that are making fiscal hawks in the likes of the Bundesbank very queasy. ELA was hardly ideal, but its no more problematic than the current "solution" the ECB has hit upon. It seems the ECB have admitted there was something to Fianna Fails strategy afterall.

View

At the time that the letter was written, the ECB had provided considerable amounts of Emergency aid to Ireland. It is clear from the letter that the ECB was of the opinion that it there is an "upper limit" on what it could provide under the "standard conditions" it applied to its assistance.

Unless posters are of the opinion that the response of the ECB should have been "Sorry but you have exceeded the amount we can loan you" and cut off all assistance in its entirity, it is unreasonable to see what else the ECB could have been expected to do.

If the government felt the ECB was beheaving unreasonably, they could have sought alternative lenders to assist them. Instead, though, they choose to stick with the ECB.

Sand

View wrote: »

At the time that the letter was written, the ECB had provided considerable amounts of Emergency aid to Ireland. It is clear from the letter that the ECB was of the opinion that it there is an "upper limit" on what it could provide under the "standard conditions" it applied to its assistance.

Unless posters are of the opinion that the response of the ECB should have been "Sorry but you have exceeded the amount we can loan you" and cut off all assistance in its entirity, it is unreasonable to see what else the ECB could have been expected to do.

If the government felt the ECB was beheaving unreasonably, they could have sought alternative lenders to assist them. Instead, though, they choose to stick with the ECB.

The ECB wasnt providing the liquidity. The CBI was. There is no upper limit to the funding an NCB can provide. The ECB now acknowledges that and is currently dumping vast amounts of money into banks which are only solvent by very generous interpretations.

Basically, there is a whole lot of conventional wisdom about the ECB legally couldnt and cant do as regardings providing liquidity. If the past few years have taught us anything it is that the ECB is able to justify doing whatever it feels it needs to do. Trichet was a raving fiscal hawk - he was not rational in that regard. When he was removed, suddenly solutions were possible and the Eurocrisis subsided dramatically. There is link between Trichet and the way the crisis got worse and worse over his reign.

Scofflaw

Sand wrote: »

ELA is within the remit of the Central Bank of Ireland. The ECB does not grant it. The Central Bank does. Any costs of, and the risks arising from, the provision of ELA are incurred by the relevant NCB. The ECB has the ability to veto ELA where "it considers that these operations interfere with the objectives and tasks of the Eurosystem" and it needs a two thirds majority to do that. Therefore if Trichet wanted to cut off ELA he should have put together a case to show that the ELA in Ireland was interfering in the objectives and tasks of the Eurosystem...of which the amount of ELA was a *very* small fractional percentage of the overall Eurozone.

Not really a strong case, without setting dangerous precedent s for the entire Eurozone. But that would have been totally fine if the ECB wanted to set that precedent.

Instead, they didn't do that, they instead made an explicit threat that unless Ireland followed specific policies, set out by the ECB, that they would use their power to veto the ELA. That's different to setting a broad policy which is the same for all members: it is using its powers selectively against a single member state.



I suppose a mugging is also an agreed exchange by that definition. The mugger doesn't *have* to let the victim live. The mugger sets their conditions for release of the victim: their wallet, their phone, their watch. The victim takes them. A fair and equitable deal which the victim agreed to.



No its very predictable that you don't find it outrageous. The governments policy decisions are the remit of the government. It is not for the ECB to use its powers to force the government to do anything, on any schedule that suits the ECB.



It's my view that the ECB should have focused on their job, and the government should have focused on theirs.

As much as ELA is demonised as this totally unacceptable "solution", the ECB is currently dumping massive amounts of liquidity into Eurozone banks using means that are making fiscal hawks in the likes of the Bundesbank very queasy. ELA was hardly ideal, but its no more problematic than the current "solution" the ECB has hit upon. It seems the ECB have admitted there was something to Fianna Fails strategy afterall.

I think the ECB and the government both did focus on their jobs. The ECB's job was to look after the money it was lending Irish banks, which, contrary to your statements, was something directly under it remit, as per the letter, and constituted a very large amount - a total of about €120bn. The ECB, or the ESCB if you prefer, was not lending any such quantity anywhere else.

One of my problems with your version is that it gives no real reason for the ECB to supposedly act ultra vires, with all the risks implied by such action. My view is that form the ECB's perspective the Irish banks were soaking up a third of their total lending, with no apparent end in sight, and no apparent will on the part of the Irish government to change the situation. They had something the Irish government wanted, in the form of ELA to the Irish banks, the power to impose conditions, and the need for an exit strategy from supporting the Irish banks.

So, again, I'd ask, is it your view that the ECB should have gone on tying up a third of its lending in the banking sector of a single country for the benefit of a government that was apparently happy to do nothing to change that?

And since that does in fact appear to be your view despite the evasions, why?

cordially,
Scofflaw