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European Tribune - Can the Eurozone National Central Banks create fiat Euros by themselves?
As long as the nationality of a bank is clear (legally through clear rules of domicile, registration and incorporation and politically through the importance of the bank in the national financial system or as an employer) the appropriate NCB and national Treasury can handle the necessary lender of last resort and recapitalisation responsibilities.
So, what happened in Ireland? Why was the Irish Central Bank unable to act as a lender of last resort for its banks, fording the Treasury to guarantee all their liabilities and create NAMA as a "bad bank" solution? And why couldn't the Irish Central Bank support the Irish treasury in the recapitalization of the Irish banks?

Note, however, that the current Irish Central Bank Governor, Patrick Honahan, was appointed just over a year ago and earlier this year issued a scathing report on the domestic mismanagement which led to the Irish financial crisis, including

Dr Honohan found that the Financial Regulator was "excessively deferential and accommodating" to the banks, while the Central Bank, led by his predecessor John Hurley, had not been alert to warnings signs of an imminent crash.

There was insufficient awareness or willingness to accept "how close the system was to the edge" and that it was the responsibility of the Central Bank and the regulator to pull it back from the edge, he said.

"Rocking the boat and swimming against the tide of public opinion would have required a particularly strong sense of the independent role of a central bank in being prepared to `spoil the party' and withstand possible strong adverse public reaction," Dr Honohan said.

Pat Neary, the former chief executive of the regulator, said he had no comment. Mr Neary's predecessor, Liam O'Reilly, and Mr Hurley could not be reached for comment.

So he cannot be held personally responsible for the mess up to and including the creation of NAMA, but what was his role in the lead-up to the recent Irish bailout?

Honahan explained the purpose of the recent EU loan to Ireland as ThatBritGuy:

to show that Ireland has sufficient firepower to deal with any concerns of the market. That's the purpose of it," he told RTE.
I think at the rook of all this is the inability of the Central Bank to fund the Treasury. The Eurozone construction is definitely lopsided, where the Tresury is supposed to act as a fiscal backstop for recapitalizing the Central Bank should the need arise, but the Central Bank cannot fund the treasury except in Germany:

Deutsche Welle: Germany's Bundesbank Posts Huge Profits for 2008 (10.03.2009)

The entire sum earned is being transferred to the federal government -- which is something of a novelty. In previous years, portions of the Bundesbank's earnings have had to be used to pay off debt from the former East Germany, but now that the debt is gone, the bank's profits will flow into state coffers.


Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Wed Dec 1st, 2010 at 08:29:11 AM EST

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