Brian M. Lucey

A question I have posed on the ECB and the Anglo Prom notes to which there seems no answer…

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brianmlucey
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I have long advocated that the Irish Government should walk from the wretched promissory notes which were given to cover the losses at Anglo/INBS , and on which we are now as a state paying €3.1b per annum (or about 5 weeks tax take). 

I have written about the mechanics of these odious scraps here. 

What nobody can answer, in specific action terms, is what would happen if we did. All I ever get, even from  market participants, is a statement along the lines of “ooh,that would be bad, sure the ECB now, you dont want to mess with them, theyd react so they would”. 

Well, they would. But how? The implication is that the ECB reaction would be devestating, and worse for the economy than burning 5 weeks tax take in a bonfire of idiocy each march. What would that be? Invasion? Cutting off irish banks, good and bad, from liquidity? What actions, and how would they be done? 

If, as I suspect, there are few if any actual actions the ECB can or would take, then it begs the question why not do this? One imagines the other members of the Troika would heave a sigh of relief at the issue being settled, and the remaining real national debt being secured from default (probably).

 

So, what can/would the ECB do if we walked from the notes? No vages threats, no tut-tuting, no pursing of lips and shaking of heads. Actual actions that they can take… please. I mean, there must be some…mustnt there? 

Comments

7 responses to “A question I have posed on the ECB and the Anglo Prom notes to which there seems no answer…”

  1. Howya Avatar
    Howya

    Possible reaction from ECB – As at the end of Sept, the Irish banks depended on approx 79bn from the ECB to support their liquidity. Would the ECB refuse to roll over that lending if we tore up the PN’s?

    Reply
    1. brianmlucey Avatar
      brianmlucey

      They might. And then the euro breaks as we are expelled. Don’t think they’re that insane and of they are…

      Reply
  2. anthonybehan Avatar
    anthonybehan

    As per twitter snippits, presumably such a retrenchment would have a negative influence on perceptions of Irish probity vis a vis the markets. That in turn would translate into a higher risk profile, and therefore higher interest rates on borrowing, given that interest rates effectively represent default probability plus margin. Our much vaunted return to the markets at the end of next year is dependent on the availability of reasonably priced money. The reasonableness quotient translates to interest rates, which broadly bear an inversely proportionate alignment with risk. Should we default on any element of our sovereign or assumed debt, that increases the perceived risk, which in turn would increase our interest rates, which reduces the possibility of an early return to the markets, and finally requires a second bailout.

    I think.

    🙂

    Reply
  3. Mildew Avatar
    Mildew

    Wouldn’t the €3.1b be factored into the current Troika program?
    So the next disbursement would simply be reduced by that amount.
    And there wouldn’t be a new program in January 2014…

    Reply
    1. brianmlucey Avatar
      brianmlucey

      To the first maybe to the second no, the IMF and eC would be delighted. Ecb not so much.

      Reply
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