ECB will examine promissory note deal's compliance with rules

Monday 18 February 2013 22.00
Mario Draghi notes positive aspect of Anglo promissory note deal
Mario Draghi notes positive aspect of Anglo promissory note deal

European Central Bank President Mario Draghi has told the European Parliament that they will examine the Irish promissory note deal later in the year to see if it complies with the European treaties.

He said if it does not comply, the ECB would have to see what legal remedies were required.

Speaking at the Economic and Monetary Affairs committee, Mr Draghi said it was not necessary for the ECB to pass a judgement on the promissory note deal prior to it proceeding.

He said it will be examined in the context of the bank’s annual assessment of actions taken by the various euro zone member states to see if they are in conformity with Article 123, which bans the ECB from financing member states' debts.

He said that crucial to the assessment will be the disposal policy of Ireland’s Central Bank - in other words how long it intends to hold the new Government bonds for before selling them on to the markets.

The chair of the committee Sharon Bowles MEP asked Mr Draghi if the opportunity to object to the promissory note deal has now passed, because the ECB noted the arrangement and because the bonds have been issued and the promissory notes swapped.

He replied: "no not necessarily".

He said that if an assessment later in the year finds the deal breaches Article 123, the ECB will see what legal remediation needs to be made.

Earlier the head of Germany’s Bundesbank Jens Weidman told Bloomberg he had concerns about the promissory note deal, but the head of the Austrian Central Bank said he thought it was a sensible arrangement.

Mr Draghi also said that all euro zone countries are in a much better economic position now than they were a year ago.

He said a year ago 90% of sovereign bond issuance was from core countries but now 60% of issuance comes from peripherals. 

On Friday, Mr Draghi said the ECB would be examining the Anglo debt deal further to make sure it did not breach the ECB's rules and statutes.

It follows comments by German ECB governing council member and Bundesbank chief Jens Wiedmann, who said the promissory notes deal came close to breaking an EU ban on the monetary financing of governments.

Under Article 123 of the EU Treaty, financing of governments is banned.

Yesterday, Minister of State at the Department of Finance Brian Hayes dismissed as "fanciful" reports that the promissory notes deal could unravel.

Promissory notes deal not about to unravel

Donal Donovan of the Fiscal Advisory Council has said that the Government's deal on the promissory notes is not about to unravel.

Speaking on RTÉ's Morning Ireland, the former IMF Deputy Director said that the deal is done, that the promissory notes have been torn up and IBRC liquidated.

Mr Donovan said the key point now is the speed with which the Central Bank has to sell the bonds that have been issued in its place.

He said the Government hopes to stretch out the holding period for the sale of the bonds, as selling them is the same as borrowing, thus putting pressure on Irish bond markets.

Mr Donovan said there is a minimum schedule for their sale, but that there is also a statement in the deal that the Central Bank is committed to selling the bonds as quickly as possible, subject to conditions of financial stability.

He stated that if someone concluded that the conditions are right for Ireland, then the Central Bank might have to act.

That is possibly the only avenue Germany could use in order to pressurise Ireland in a way that would reduce the advantages of the deal, he added.

Meanwhile, Minister for Social Protection Joan Burton has denied any division in the Cabinet over how to allocate savings made under the promissory note deal.

Minister Burton said she was of the opinion that the Government should use all available funds to boost the economy and protect jobs.

She said that Fine Gael had the same priorities.

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