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.
Now look at the opening position of the Irish government.
The position of our government was: the banking debt is not ours, it is unfair and Ireland was only doing its bit to save the European banking system by bailing out our bank. By preventing contagion, we are owed a favour. So the Irish government’s red line in the sand has to be to avoid swapping the promissory note into a government bond. Why? Once you do this, the debt becomes the debt of the Irish people – and the ECB are off the hook.
Once you accept that it is Irish government debt, the game is over. So the last thing the government wants to do is convert the unorthodox promissory note into government debt – at any maturity.
The deal on the table is a complete defeat for the Irish government and the Irish people, because at its core, when you strip away all the technical details, it is about transferring bank debt to sovereign debt.
So, it is game set and match to the ECB. Now it is rid of the promissory note – which was only an IOU written by the last Finance Minister with a vague undertaking to clear things up eventually -converting it into Irish sovereign debt, which means you and me are definitely on the hook. The ECB must be sniggering up its sleeve, if it is not actually laughing in our face, at the inability of the Irish negotiators to act on our behalf.
Yet again, our negotiators have sold the people short and given the ECB everything it wanted.
This move will increase overall Irish government debt and in time, will bring forward the risk of a sovereign default in Ireland, which is precisely what the deal was supposed to avoid.
David McWilliams’ new book The Good Room is out now.
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David, Noonan said Yesterday that the reason they never asked for a write off of the PN was because the Greeks didn’t get any write down of ECB debt.
You have said that the Greeks did get a write down
What gives?
Even Gilmore said yesterday that it was always sovereign debt. You are deliberately distorting the facts and playing pied piper for London. Karl Whelan has it right, you are just spreading lies. Too bad.
Once the debt becomes Irish sovereign debt, why not default on that debt? That’s what Iceland did. Off the hook for the promissory note, Ireland still has enough sovereignty to default. That, or the real prospect of that,should bring the ECB, Germany and the EU down a notch and make them negotiate fairly.
They don’t care, they will be in the ground by the time the debt has to be paid. Generational apartheid.
About time there was a march on Leinster house and a sit down in the central bank of ireland.
Traitors all.
Ireland needs to leave the Euro and Dump the debt. The sooner the better.
Let down yet again by the goverment.
Yes yes well said David .
David you know yourself this only skimming over the cracks.
There’s a lot more serious money problems for mortgage holders coming to a cinama near you soon.
Sovereign Leech Minister
Part 1 Negligence : for Fatal Intravenous Bad Blood injected into Margaret McCole .
Part 11 Fraud : for Fatal Intravenous Sovereign Deception of Irish Nationhood.
Part 111 Treason : for Denial of Voice of Ireland
There they are, our alleged government ……Patting themselves on the backs..!!!..Totally deluded bunch of self serving morons. Christy Moore is right….we are a bunch of s*** takers! A generational debt plan to shackle the future of a country.
“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.”
In fairness David, did the bank guarantee introduced by the Irish Government not turn Irish bank debts into sovereign debts?
A genuine question posed by an admirer who feels you were used and abused by Brian Lenihan.
I wrote this in last article. I feel it is even more relevant here… Whether we like it or not, the die is cast. We are on a road that most other developed countries share. Maybe it is a consequence of modern democracy that need for the elected to hang on for the next term drives unwise profligacy and hence on-going debt rollover to perpetuity. Whatever it is, we are stuck with it for the foreseeable future and I expect a greater and greater portion of wealth will diverted away from Elected government to Private government — slowly but surely… Read more »
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Hi, Now we have a situation where the massive losses which were in the former Anglo are now lumped in with all the non-performing loans in NAMA. On top of that we will have all the losses crystallise this year from the people underwater in their mortgages which will back up into the so called pillar banks and all of which will wind up on the national balance sheet. Are we looking for being on the hook for north of €0.25 FUCKING TRILLON EUROS? And the scum of the earth in the Dail spinning that this is a great deal… Read more »
Lookit, this eventuality of switching debt was always on the cards.
The beneficiaries of the banking-crony network run property bubble HERE running this economy ALWAYS factored in that the tab would be absorbed into the national debt.
Those who are responsible have blood on their hands.
Posted yesterday at Lemetropolecafe 06:44 Macro Summary: Eurozone sovereign debt crisis Ireland: Ireland liquidates Anglo Irish to facilitate promissory note deal: What happened?: In a late night scramble, the Irish government rushed through legislation to liquidate the failed Anglo Irish Bank. While the government had originally intended to announce the liquidation alongside a deal with the ECB to replace the €31B it pledged in a promissory note for defunct lenders Anglo Irish and Irish Nationwide during the height of the debt crisis, it was forced to move early to protect the country from legal challenges following leaks of its latest… Read more »
When the spin and hype clears the PEOPLE will realise they’ve been duped, AGAIN. The only positive is that a future government can default on this drawn out affair.
By the way, this morning’s newspaper headlines are truly revolting to any citizen not in the sheep flock.
Honestly, if there is a low turn out at tomorrow’s marches then where will the CHANGE come from if not from the PEOPLE?
The Government should be charged with treason!
The Irish Times reports that Enda confirmed the ‘interest-only’ basis of the debt in the Dail. (“In effect, we have replaced a short-term, high interest rate overdraft that had to be paid down quickly through more expensive borrowings, with long-term, cheap, INTEREST-ONLY,” said Mr Kenny). In 2038 the principal will remain. All the while interest will accrue, to be paid by this and the next generation. Eternal Debt. A debt that never was Ireland’s, that was not inflicted by our ‘government’ but by a secret meeting in the dark of September 2008 and never by our Dail, will now be… Read more »
When anyone mentions Sept 2008 and ‘that night’ – I always see in my minds eye the vision of John Gormley answering the ‘phone in his home, in his pyjamas (as he said himself)! It sums up exactly what I think of our ‘leaders’ – to use an old-fashioned term – all ‘buffoons’.
At some point David, you’re going to have to accept that the negotiators are not idiots. I know the temptation is to ascribe to stupidity what could equally be explained by malice… but this is a very certain kind of stupid. And it is far more plausible that the explanation lies in malice, instead of ignorance.
When will you write an article which talks about the intelligent forces betraying our country, instead of the ignorant gombeens we allegedly elected to run the country?
“Today as celebrations begin in earnest across Ireland,Throngs of people line Westmoreland Street,left and right of Leinster House as far as the eye can see,towards Stephens green & Nassau street people stretch to catch a glimpse of the victorious coalition Government,led by Enda Kenny & Eamon Gilmore” The anti-austerity march planned for Sat the 9 of february has been switched to a street party in honor of this governments glorious victory over the E.C.B Leaders from across the World are lining up to attend, as the Taoiseach is feted by World business leaders offering investment,jobs & security.Private jets can be… Read more »
Thanks for clearing that up David. I also am curious as to the motivations of these people who do these ‘deals’. Its rather difficult to accept that they are just plainly and collectively idiots who can’t see the woods for the trees (though there are certainly idiots amongst them surely there are also manipulators). What accounts for the Government adopting this kind of strategy, is the question that bothers me. I know this is an economics blog and that is a political question. And I know the first thing many would be inclined to thing is the pensions and the… Read more »
We have been enslaved by the money system to work to pay interest and in return we have received nothing and will receive nothing, this is called slavery.
Welcome to the Magdalene Asylum those who don’t obey in the rest of the EU will be in fear of been sent here to this penal colony. But the people voted for this
What you all say is true but only from two perspectives economics and ergonomics (i.E.) gettin home from solving the problems of the world in the pub. The essence of the tiriad is in that there are other players forgotten per.ex. monarchy tulips canals et.al.
“Yet again, our negotiators have sold the people short and given the ECB everything it wanted.”
I do not see 2 sides at all here.
They are the same.
ECB and NCB’s are government owned.
They are all criminals in white coats.
I’m going to repeat what I posted on IE. Hopefully people here are more willing to discuss these points. The ECB hasn’t agreed to this deal. Effectively the deal is a unilateral move by the Irish Central bank to provide (very generous) monetary financing to its own government. I think that allowing this deal may well lead to the break-up of the eurozone; Germany out first. I feel a little odd writing this because, while it seems obvious, absolutely no-one seems to be bothering to mention this. The giant green €25 billion elephant in the room is the fact that… Read more »
Bond = Link, Tie, Connection, Attachment, Friendship, Acquaintance, Relationship
Bondage = Burden, Oppression, Repression
Bonding = Bond
Presntly how much has this supposed deal cost us? would I be right in saying a potential “hospital per year” a “motorway per year”?, not one paper or artical I have seen has plainly put it into monitery terms per year, I know its variable but lets say at 1% per year how much does that equate too? (200million etc) why has no media related this in these terms? like 1% is a such a low figure it seems meaningless and thats all part of the media spin, added to this they call it a saving WHY WHY WHY? are… Read more »
Dermdod A question is always a good start? But thinking is hard that is why people rarely do it. If most of our politics, press, and public walked any faster their heads would end up in the arsehole of the sheep in front on them. Thinking is hard that is why people rarely do it , this is why ponzi schemes work, this is why the people voted for the EU and why they continual endorsed it… This why we have not stormed the our states institutions. Logic in not a prerequisite to governance of the people the word WHY… Read more »
So were still fucked, er fecked I mean, fecked!
You put it bluntly David and my partner and I came to the same conclusions quickly
It was galling listening to reporters, politicians and other insiders on the Vincent Browne show heralding this as a great day for Ireland
This was an act of class war against ordinary people by a cabal of comfortable traitors. As simple as that.
yep smokey,fecked….
how is business ?
Someone earlier mentioned Christy Moore, and Hell yes, sadly this quote is so very true….”obedient shittakers”…. So what can be done? As RR6 relentlessly stated here, over and over again, it is about you and your family, loved ones, and no one else! Friends of mine, “hardcore Irish” in the best meaning of the word, they too leave Ireland behind, and rightly so, to look after themselves and their children where there is a future possible. Cowen, Lenihan, Kenny, Noonan, Gilmore and the whole shebang, no one is feeling uncomfortable, none of them are hiding in shame, on the contrary.… Read more »
Aplogies for my wrong numbers in posts above. The result of the vote was:
113 Yes
35 No
17 Absentees or abstentions
Fine Gael
66 Yes
7 No
Labour
29 Yes
4 No
Fianna Fáil
15 Yes
4 No
Sinn Féin
14 No
Enlightened Democraties Don’t Bail Out Banks and Impose Austerity, Icelandic President Grimsson Says
Life is not going to improve in Ireland unless we change who’s running the show,the current deal that the government has done is a deal that we tge people can get rid of all we need is the proper people running this country and untill this happens we will be let in the darkness .
It’s time we stepped into the light.
maybe it’s time to accept that the world has been playing a big game of monopoly. Ireland didn’t do very well but hey it’s only paper money anyway isn’t it? Finish the old game chuck the board away and buy the cork monopoly set. The one where Anglo Irish don’t exist, the Germans don’t run Europe and Roy Keane is taoiseach
The timing of the pantomime we were treated to on Wednesday night was interesting. It followed the ruling on the Hall case and preceded the vote on the promissory note payment- http://www.thejournal.ie/dail-vote-promissory-note-repayment-779599-Feb2013/ If reports I read the following day are to be believed it seems the “leak” about the liquidation of Irbc came from a source a lot closer to the Dail than Germany. I would think the fact that this government would be willing to rush a bill through the Dail and its TDs would be willing to vote on it without having time to read it suggested we… Read more »
One glimmer of hope from the whole debacle was the performances of Shane Ross and Stephen Donnelly.
It is time for a new political party.
Breaking News… their is now confirmed reports that their is Horse-meat in…………..
Shampoo,toothpaste,petrol,diesel, children’s clothing,sweets , ice cream,ballot papers,news readers, televisions , DVDs ,laptops,political parties,beef,pork, lamb,chicken,fish,bread,pastries,cake, tires,cars,trucks,buses,tarmac,houses,lamps,ovens,schools, cigarettes,ashtrays,porn, alcohol, Holland, France, Germany England Ireland,Iceland, The Bundesbank, Central-bank, Eamon Gilmore’s ears, Dublin Airport, Your couch,cushions,carpet,bed,toilet, Dalkey,Dogs,cats,mice,rats,Books,Donald Trumps wig,Garda uniforms, Miriam o Callaghan’s microphone., Auctioneers,Banks & Bankers nuns,priests & monks,The Vatican,Trains,Planes & Automobiles,Hollywood,Bollywood & Ardmore Studios… Brussels,The E.C.B,Angela Merkel…….etc etc etc
NOW…….Can we please get on with what is really fucking important,…you.!……yes, YOU !!!!!!
Whoever controls the currency is the Sovereign. All officials, elected or not, are paid servants of the Sovereign. The era of promoting the idea that The People are the Sovereign are over (The People meaning the prosperous classes in a liberal, bourgeois democracy and everyone, to some extent, in a Social Democracy).
Who is Ireland’s sovereign?
Remember, the USA had a federal currency for many many years at the same time that states could produce their own currency. This dual system made capital for investment plentiful.
This is an interesting comment on currency, sovereignty and Europe:
http://mythfighter.com/2013/02/08/has-europe-now-formalized-its-suicide-pact/
[…] choose to overlook (or don’t understand). Secondly the poll was taken before the crucial (and divisive) debates and deal in Dáil Éireann on the so-called “promissory n… which will certainly effect any future polling (the Red C / Business Post poll is some two weeks […]
“”””””””””So now the legislation is passed do we have a deal with the ECB? No, the government’s hope is that the promissory note arrangement can be swapped for the bonds issued through NAMA. This would have the effect of spreading repayment (we would still be repaying the €30.06 billion) over a longer period and proving less burdensome, removing the onerous loss of €3.06 billion ever year to the thin air (As we explained before, the promissory note money is handed to the Central Bank and electronically deleted). But all of this needs the approval of the governing council of the… Read more »
The new Anglo Irish bailout saddles the government with 3.1 billion euros in annual interest payments — which amount happens to be the same as what many idiot politicians are saying they will cut, in order to reduce the government debt!
[…] Read More: davidmcwilliams.ie […]
Since the government rushed to liquidate the IRBC we now have a sovereign debt that was never ours this is not good news they have just remortgaged Ireland but now it is written in stone. What other country would liquidate a bank at closing time while in a bar at government buildings these were not clever people at work, this was panic. Draghi says “The governing council took note of the Irish operation,” he sad. “I’m going to refer you to the Irish government and the Irish Central Bank for the details of this operation which was designed and undertaken… Read more »
Don’t you get it ? NOBODY CARES…..Nobody gives two shits. This is Ireland. Families,small business,farmers,the unemployed,the sick the elderly, children,underemployed self-employed suffering behind closed doors. Suicides,depression ,anxiety,Fear,anger,bitterness, prescribed medication,self medication.Thankfully for Government most people are so dumbed down they can do want they want. Husbands blame wife’s , wife’s blame husbands, their children ask them to stop shouting.a daughter asks mummy why daddy is in bed at 2.00 in the afternoon. A man hangs by the neck from a tree as crows welcome the dawn from their perch on branches above him…….mothers ringing mobile phones in the middle of the… Read more »
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