Let’s get something very clear
David McWilliams -
There are two parties in the promissory note negotiations. On one side is the ECB and on the other, the Irish government. The ECB wanted all along to turn Irish bank debts into Irish sovereign debts. The Irish government wanted to avoid this at all costs, preferring either some debt relief or some mutualization or sharing of the debts.
Once the promissory note was in place the Irish had wriggle room, which the ECB wanted to reduce, while giving as little away as possible.
Lets look at the interests of both parties in turn, beginning with the ECB.
There are two main reasons the ECB wanted the Irish to swap the promissory note for sovereign debts. First it would tidy up, in its eyes, the messy promissory note; it was unorthodox and as long as it was around, ran the risk that the pesky Irish could go rogue, doing a local deal with themselves between their central bank and their government – far away from Frankfurt. If the Irish government said they weren’t paying the note, the Irish central bank would find itself breaking the ECB’s rules on monetary financing. By not paying the note and yet still extending cash to Anglo, the Irish central was simply printing money with nothing to back it up.
The second reason the ECB wanted the Irish to convert the promissory note into Irish government bonds, was because it would create collateral against the money the Irish central bank was printing: and the Irish people would be on the hook. As long as the Irish people are on the hook, the ECB is happy.
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2013-02-09 03:03:34
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