How the ECB works for Ir(c)eland?

October 9, 2012

There is much misunderstanding as to how the ECB works both among politicians, the general public and even parts of academia. It’s often viewed as a large bank vault with billions at its disposal it can create out of thin air to do with as it will, to print money willy nilly.

But first and foremost its remit is to prevent inflation and in doing so it must protect the money supply and not print money that would lead to inflation and loss in value of the euro on global markets and at home.

http://articles.businessinsider.com/2011-09-22/markets/30188368_1_european-central-bank-ecb-balance-sheet

“- Revaluation accounts, general reserves ($94 billion), risk revisions, and paid-in capital ($13 billion) would all serve as a backstop against loss absorption. After all of this, the Eurosystem could decide to mark losses against income of the NCB’s”

Here’s a pdf http://www.ecb.int/pub/pdf/scpops/ecbocp111.pdf

“MAIN DRIVERS OF THE ECB FINANCIAL ACCOUNTS AND ECB FINANCIAL STRENGTH OVER THE FIRST 11 YEARS”

And, http://ftalphaville.ft.com/2012/02/29/903061/how-deep-are-the-ecb%E2%80%99s-pockets/

“The revaluation accounts include unrealised gains on the eurosystem’s holdings of gold, FX, and other investments. If these accounts were combined with the eurosystem’s capital, then the ECB could absorb losses of about €500bn.”

Interestingly, Buiter and Rahbari do not give a breakdown of those revaluation ‘off the book’ accounts. The trouble with these revaluation accounts is they disguise not only profit, but loss. So, for example, while there has been a significant and large sell off of gold over the past 5 years profit on its increasing value since 2005, there has been no write down due to the falling value of the euro on world exchange rates and the rising value of remaining gold reserves.

Similarly, while there is profit on banknotes through seigniorage and the issuing of promissory notes to eg Anglo, there is no underlying write-down of the ability to generate long-term profit out of the medium term risk these notes pose to the ECB system.

Similarly, http://www.ecb.int/mopo/liq/html/index.en.html#portfolios ECB is exposed via its  Covered Bond Purchase Programme (CBPP2), with a view to (a) easing funding conditions for credit institutions and enterprises has issued approx €100 bn over the two programmes to date September 2012.

Incidentally, Irish negotiators have achieved nothing in the way of financing/switching from Promissory notes for Anglo into a bond purchase/equity advance from ECB via this route.

In summary, ECB manages National Central Banks mandated by its EU policy set out in the treaties of Maastricht and Lisbon. But liabilities incurred by the ECB though it has significant buffers against such losses, if such liabilities come due to losses via the above, these losses are shared and borne by its member NCB’s.

Larger countries such as Italy and Spain have been successful in using the LTRO and Target2  mechanism of the ECB to leverage vast loans to hide their debt, not so Ireland, Europe’s lamb to the slaughterhouse of George Orwell’s 1984.

http://soberlook.com/2012/02/new-ltro-will-boost-target2-imbalances.html

This is why political considerations eg motivating recent statements by the Dutch, the Finns and Germany that  ECB will not rescue Ireland carry such weight.

It’s a sad reflection on the quality of Irish politicians and negotiating teams that the thorn of Irish debt has not been grasped and forbearance from the ECB and European partners has only produced an empty bucket with a hole in it from Europe.

Its time to refuse to pay the Promissory note and negotiate our departure from our disastrous episode of self-destruction at the hands of Europe through mismanagement at home and abroad that has led Ireland to economic disaster with the promise of even more loss to come.

Effectively, Ireland has been left swinging in the breeze by the ECB and the European commission. Recent comments by the German, Finnish and Dutch Finance ministers have clearly shown how the european commission has abandoned Ireland to these interests groups.

Growing concerns that the inner core continue to suck the assets of peripheral countries inward preventing countries like Ireland  exercising their own devaluations, interest rate changes or other unilateral monetary policies, or other balancing methods agreed at EU level, clearly show the EU does not work.

Its time for Ireland abandoned by the European Commission, Mr Draghi, and its financial partners in other member states, to abandon the EU. Currently Enda Kenny & Co are falsely with chains of debt giving off the erroneous and misleading lie that we’re on the rebound. Why would the troika under this persuasion loosen those bonds?

Current reminders from Mario Draghi that ECB is not in the business of monetary financing , that ECM will not retro fit legacy Irish debt, no agreement on an eg 40yr bond under less onerous rates than draconian promissory notes at €3bn/yr would appear to signal the ECB is ready to cut Ireland loose from the European fold.

We are being given the stark message that either we pay up or leave. Combine this with renewed concern among the Irish farming community on the question of CAP reform, its clear Ireland should take the bull by the horns and leave the euro. This with negotiations on ability to repay with our debtors can do for Ireland what Iceland has done for its people.

Sadly ministers would appear to be more concerned with their pension entitlements and cosy lifestyle under the euro flag than to be concerned with such matters of Irish sovereignty. We are still beguiled under the false charm of EU and therefore remain the EU’s pig in a poke.

Misled by incompetent politicians fed with the ruse of the complexity of the negotiations regarding Ireland’s sovereign debt, there are no Ólafur Ragnar Grímsson of Iceland about with a knowledge of their finance/economics brief to see the Berni Madoff’s €67 bn heist of Irish taxpayers in the so-called bailout of Ireland aka Anglo and French/German banks as the plain scam that it is.

Its time to consider other options and other sterling or dollar alignments.

End

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