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When was that supposed to happen?

According to Patrick Honohan, the governor of the Central Bank of Ireland, appearing on Tonight with Vincent Browne, that would be September 2010. At least if I am understanding correctly which part of bank guarantees you are talking about.

Governor of Central Bank of Ireland claims Lenihan was "crestfallen" by EU stance on bondholders « NAMA Wine Lake

PH: Yeah, let me make that clear. It was, the magnitude of the cutbacks was negotiated in Brussels[beforehand], but not in the context of the programme. It was negotiated, I can't remember precisely the date, it was sometime in September I would think, probably September. When they said "this will do it, this will allow you to be compliant with the excessive deficit procedure" It wasn't in terms of the programme but that was negotiated. And by the time the EU/IMF discussions were held, there was a question "oh, well maybe it should be tougher" but the answer was "no, that's what's been agreed". We just stay with that.

VB: He seemed to me that he was crestfallen after that thing had happened.

PH: Yes. I think he had expectations. I think we all had expectations that we would discuss this over a longer period of time, that we would come up with something more sophisticated in terms of a financing programme that would have more of a risk-sharing element. But instead it was a sort of plain vanilla, "yeah, continue what you're doing, we'll give you money for two years, and you'll convince the market"

VB: And then of course that- On top of the EU/IMF deal they said to you that in addition to that you cannot default on even the unguaranteed debts of the banks. 

PH: I think that's the main reason he was crestfallen.

[moment of silence]

VB: And why did that -

PH: It wasn't part of the negotiations as such. There was no deal. There was no agreement on that. But there was talk around, about that [gestures circular movement with hands] And eventually the decision was [resolute tone] "No". I think he was quite discouraged by that.

VB: Was there no room for us to say "Well sorry, we're not going to finance the unguaranteed debts"

PH: It's not in the agreement. It's not in the agreement. I mean you know the way the world works. There's political room. There's no political room. No political room was offered to him by the people.

Unfortunately, when pressed on what the alternatives were, Honohan evades teh questions.

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by A swedish kind of death on Sat Oct 13th, 2012 at 03:28:16 PM EST
[ Parent ]
Let's interpret these rather evasive words as an assertion that "us" the irish government was indeed forced - by whom isn't Honohan a part of the ECB? - to not default on everything.

But this is September 2010.

What did the irish government do between September 2008 and September 2010?

It could have defaulted to it's heart content in this space, couldn't it?

by IM on Sat Oct 13th, 2012 at 04:16:29 PM EST
[ Parent ]
No, we have the ECBuBa on the record as early as 2009 blackmailing Greece with a threat to fail to rediscount its bonds following a sovereign default.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Oct 13th, 2012 at 04:46:20 PM EST
[ Parent ]
a) we are not talking about Greece

b)ECBuBa we are talking about fictional entities now?

by IM on Sat Oct 13th, 2012 at 04:48:57 PM EST
[ Parent ]
Your contention is that Ireland could have defaulted between 2008 and 2010. Implicit in that contention is the claim that the ECBuBa would not have blackmailed Ireland with the threat of refusing rediscount facilities to Irish banks following an orderly default and dismantling of insolvent banks in 2008-10.

Their behavior towards Greece is evidence that the ECBuBa would, and that Ireland therefore did not have the option to default in 2008. That it did not attempt to exercise that non-existent option until 2010 does not magically make the ECBuBa unprepared to deny the option in 2008 - as all available evidence suggests that they would have.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 14th, 2012 at 04:49:40 AM EST
[ Parent ]
The evidence is that they would have threatened to cut off liquidity. Is there evidence that they would actually have done it?
I doubt the Irish government needed convincing in 2008. At least they very much owned the policy. Up to suggesting that everyone should move their deposits to Irish banks.

And even in 2010 odds are that the ECB was bluffing.

by generic on Sun Oct 14th, 2012 at 05:53:10 AM EST
[ Parent ]
Nobody's calling the ECB's bluff, 3 1/2 years into the crisis.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Oct 14th, 2012 at 06:00:24 AM EST
[ Parent ]
And even in 2010 odds are that the ECB was bluffing.

Odds are that the Soviets were bluffing in 1962, at least in the sense that if it came to pushing the Button over Cuba they would have backed down.

When you have to make an actual decision in the real world, you don't want to make that bet.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 14th, 2012 at 06:46:36 AM EST
[ Parent ]
Well, the Irish bank guarantee in 2008 happened after Lehman and was more of less simultaneous with Dexia, Fortis and Icesave. I'm not sure the ECB had any particular role in forcing the governments of France, Belgium and the Netherlands to bail out Dexia and Fortis.

What we do know is that Iceland got applied the anti-terrorist act and had its state assets seized by the UK for refusing to guarantee nonresident deposits.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sun Oct 14th, 2012 at 05:55:03 AM EST
[ Parent ]
The ECBuBa couldn't have vetoed a restructuring of Dexia and Fortis without threatening to withdraw rediscount facilities from banks and assets that had never been restructured.

In the Irish and Greek cases, the threat of withdrawal of rediscount facilities from banks that had been restructured amounted to a threat to withdraw rediscount facilities from the entire banking system.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 14th, 2012 at 06:50:03 AM EST
[ Parent ]
The real issue is that, without a proper banking resolution scheme in place (and Europe - or the member states - by and large doesn't have one now, let alone 4 years ago), the ECB cannot withdraw support from a bank without causing a crash.

And "proper resolution scheme" for banks means being able to summarily restructure a bank without going through bankruptcy court. The FDIC has been doing that for 80 years, and making that possible in 1933 is what allowed the 1930s financial crisis to touch bottom (the real economy was a different matter, but it also touched bottom in the first year of the Roosevelt administration).

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sun Oct 14th, 2012 at 07:17:16 AM EST
[ Parent ]
Question: Would it be legal - meaning allowed by the relevant treaties and rules governing the ECB - for the ECB to withdraw rediscount facilities from banks, because the government of the state they are established in, refused to follow a particular fiscal policy?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sun Oct 14th, 2012 at 06:09:43 PM EST
[ Parent ]
I think Draghi has been asked questions along these lines since early August when he announced the OMT programme and described its link with fiscal policy conditionality. See, for instance There Was An Amazing Exchange Between Mario Draghi And CNBC's Silvia Wadhwa (Business Insider October 4, 2012)
In other words, Draghi basically acknowledged the concern Wadhwa raised about political leverage by saying that it was justified in pursuit of the repair of monetary policy. And the monetary transmission mechanism is, of course, an ongoing concern.

The upshot is that it should be perfectly clear now that if the ECB's intent is to repair the mechanism, it is more than willing to discard notions of popular sovereignty to do it.

So, it may be reasonable to expect the ECB to wield more of its influence in Europe going forward as democracy becomes increasingly subverted by supranational policies and negotiations.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Oct 14th, 2012 at 06:25:09 PM EST
[ Parent ]
"Your contention is that Ireland could have defaulted between 2008 and 2010. "

The popular contention in Ireland right now is that the irish government now and back then wants to default on unsecured senior debt of certain banks, namely Anglo-Irish. But the ECB somehow doesn't permit that.

I tend to point out that this is a myth. In 2008 the Irish government happily guaranteed everything in any bank, forcing the rest of Europe to follow suit. Nobody talked about defaulting on unsecured senior debt then and nobody differentiated between good "pillar banks" and evil anglo-irish then.

Even if in September 2010 a non-default on unsecured senior debt was a condition, that still leaves two years.

so my contention is: Ireland had two years to default on unsecured senior debt in aglo-irish and irish nationwide.      

by IM on Sun Oct 14th, 2012 at 05:04:20 PM EST
[ Parent ]
And I'm saying that unless you want to argue that Ireland Is Not Greece, it had at the very most only one year, since the ECB is on record blackmailing Greece since early 2009. And I have no particularly compelling reason to believe that it was an option that Ireland could have actually exercised in 2008, without running into a wall of scurrilous blackmail from the ECB.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 14th, 2012 at 05:12:47 PM EST
[ Parent ]
Turtles all the way down. Now unsupported claims about the ECB and Ireland are based on unsupported claims about the ECB and Greece.

The irish goverment didn't default on (some) creditors of (some) banks because they didn't grasp the necessity or desirability until years into the crisis.

Even now, if you lent money to e. g. AIB you are in the clear. Because it is a good pillar bank.  

by IM on Sun Oct 14th, 2012 at 05:21:27 PM EST
[ Parent ]
And when the Irish government realized the mistake and wanted to default on the guarantees and the bonds issued in support of those guarantees, they were told no by the ECB.

Oh, and the ECB's threats to crash the Greek banking system following a strategic default are well and widely documented. Do you want me to find the relevant news items for you?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 14th, 2012 at 05:27:22 PM EST
[ Parent ]
and Ireland is indeed not Greece.
by IM on Sun Oct 14th, 2012 at 05:21:59 PM EST
[ Parent ]

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