Tag Archives: Michael Noonan

ECB: “What We Are Doing Is Actually Illegal”

Well, well, well… this must be the confession of the day!

“Maybe we might come to the conclusion that we should stop.”

ECB representative

Thanks to The Irish Economy Blog who picked up this amazing piece of selfinsight from one of the representatives of the European Central Bank, ECB:

This post was written by John McHale:

After a turbulent week, RTE’s This Week programme provides a useful stock taking with Mark Gilbert (Bloomberg), Dan O’Brien and Brian Hayes.

(You can listen here; starts min 5:19).  

Part of the background is a Sunday Times front-page story on the ECB’s reaction to Michael Noonan’s Washington statements (no web link).

“In the meantime, we may have to come to the conclusion that it doesn’t really make sense for the ECB to keep putting €100 billion into Irish banks.   What we are doing is actually illegal, but we have being doing it because we want to help Ireland.” 

“Maybe we might come to the conclusion that we should stop,” the ECB source says.

What !?

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The Brilliance Of A Bailout

The European Central Bank tried to force Ireland into an EU/IMF bailout, according to Irish Justice Minister Dermot Ahern. Today the ECB is forced to buy Irish bonds in the market to prevent the recently bailed out country’s economy from total collapse. And at the same time the ECB is increasing the bailout pressure on Portugal. Excuse me, but I can’t see the logic.

“The government was cleaned out in the negotiations.”

Michael Noonan


While the 111 billion dollar rescue package to Ireland was supposed to calm the financial markets, the exact opposite has happened. The volatility and the cost of insuring national debt by Credit-default Swaps is just getting higher and higher. Yesterday we saw the biggest slide in Spanish government bonds since the euro’s debut in 1999. Today the ECB is intervening in the market to keep Irish bonds from going down the tubes.

According to two anonymous sources, the ECB have bought a “small amount” of short time Irish government bonds Tuesday morning, Bloomberg reports.

The yield on Irish 2-year bonds are up by 0,14%, as of 1 PM (CET) today.

The cost of insuring Portugal against default rose 11.5 basis points to a record 551 today, according to CMA prices, and the ECB is now putting pressure on the Portuguese government to apply for a bailout, according to the Irish minister Dermot Ahern.

“Clearly there were people from outside this country who were trying to bounce us in as a sovereign state, into making an application, throwing in the towel before we had even considered it as a government,” Ahern says in an interview with the Irish state broadcaster RTE today. Adding: “And if you notice, they are doing the same with Portugal now.”

Asked about who was pressuring Ireland, he says: “Quite obviously people from within the ECB.”

Ireland’s crisis has forced the ECB to buy government bonds and pump money into its banking system.

Irish domestic lenders increased their reliance on ECB funding by 3.3 percent in October and the central bank today purchased more Irish bonds, according to two people familiar with the transaction, Bloomberg reports.

The bailout has sparked a wave of domestic criticism accusing Prime Minister Brian Cowen of giving up the country’s sovereignty for punitive terms.

More than 50,000 people took to the streets of Dublin on November 27, the day before the government agreed an average interest rate of 5.8 percent for the loans from the EU and IMF.

“The government was cleaned out in the negotiations,” says Michael Noonan, finance spokesman for Fine Gael, the largest opposition party.

“The interest rate of 5.8 percent is far too high and verges on the unaffordable.”

The Irish Bailout - Illustrated

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The risk for Europe is that Spain’s economy is twice as big as that of Greece, Ireland and Portugal combined, meaning the euro region’s 750 billion-euro bailout fund may not be big enough if the country resorts to aid. Spain’s 10-year government bonds slid yesterday by the most since the euro’s debut.

The extra yield investors demand to hold the securities instead of benchmark German bunds widened to euro-era records.

(See also: Belgium Joins The PIIGS: And Then They Were Six)

“The big elephant in the room is not Portugal but, of course, it’s Spain,” Nouriel Roubini, the New York University professor, said at a conference in Prague yesterday. “There is not enough official money to bail out Spain if trouble occurs.”

The European Central Bank may have to step up purchases of Spanish government bonds and backstop its banking system if the country runs into financing difficulties, Citigroup’s chief economist, Willem Buiter, wrote  in a note to investors yesterday. “Once Spain needs assistance, the support of the ECB will be critical,” Buiter said.

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10-year sovereign spreads (against 10 year German bunds)

Previous Day Close Yesterday’s Close This morning
France 0.459 0.521 0.535
Italy 1.753 1.993 1.998
Spain 2.538 2.787 2.746
Portugal 4.484 4.564 4.477
Greece 9.299 9.329 9.79
Ireland 6.866 6.966 6.956
Belgium 1.013 1.214 1.192

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Ireland Applies For Bailout – IMF Plans Dramatic Spending Cuts

The Irish government will Sunday ask for the Cabinet’s approval of a financial bailout from the EU and the IMF, according to finance minister Brian Lenihan. The size of the emergency loan is still unknown. Irish financial politician Michael Noonan predict a dramatic call for spending cuts – all over the board – from the IMF.

“They’ll be looking for the dropping of programmes and a totally new way of delivering services to the public which will cost less with fewer people.”

Michael Noonan

Prime Minister Brian Cowen of Ireland

As the second EU member now prepares to be bailed out of its financial problems by the European Union and the International Monetary Fund, the IMF is getting more worried than ever and are planning a total spending overhaul.

Irish finance minister Brian Lenihan confirms that a formal application for an emergency loan from the EU/IMF is being drawn up.

The Irish Times reports that the Irish government will seek the Cabinet’s approval for the loan today, Sunday.

Following several days of negotiations with IMF/EU officials in Dublin, Mr. Lenihan says he would recommend that Ireland applies for an unspecified bailout loan.

Brian Lenihan

The minister also says he reviewed the negotiations last night and decided that the time was right to make an application for loans for both the State and the banking system.

In an  interview with RTÉ Radio Brian Lenihan says: “I will be recommending to the Government that we should apply for a program and start formal applications.”

He declined to be drawn on the exact size of the loan. When asked about the scale of the loan, Mr Lenihan confirm that the figures would be “tens of billions,” however  “nowhere near” the EUR 70 – 80 billion as indicated by economists and commentators.

The Irish minister points out that the interest rate charged on the loan has yet to be agreed on, but it will be signficantly lower than the rate currently available to the Government on international bond markets.

Mr. Lenihan also admits for the first time that the nation’s banks has become a too big a problem for the country to resolve on its own.

“The key issue all the time for the Government is to ensure that we do not have a collapse of the banking sector,” he says.

The euro zone finance ministers will conduct an emergency conference call Sunday evening to consider the Irish finance minister’s declaration.

According to The Irish Times, things are now moving quickly, and some believe the European authorities may seek to finalize a decision before the markets opens on Monday morning.

Predict Dramatic IMF Reform

In an interview with the broadcaster RTÉ’ earlier this week,  Fine Gael finance spokesman Michael Noonan, said that the IMF is planning a “fundamental restructuring of expenditure.”

Fine Gael is Ireland’s second largest political party, member of the European People’s Party – European Democrats Group and with representatives in the EU parliament.

The International Monetary Fund want “fundamental restructuring of expenditure and that’s where they’ll dictate, rather than on the specifics of the cuts”, the Fine Gael finance spokesman says.

“It’s not like slicing a salami or cutting the end off a cucumber,” Noonan says, adding that the IMF “wouldn’t probably specify a cut in the minimum wage but they’d say you have to get your labour market working properly.

“You have to do like they’re doing in the UK and ensure that work is always more valuable than welfare. And by setting the headlines and by indicating serious expenditure restructuring in a certain area the Government implementing has very few options.”

He believe a similar approach will be chosen to reform the public service sector.

The IMF had no interest in “taking a few civil servants out” here and there. “They’ll be looking for the dropping of programmes and a totally new way of delivering services to the public which will cost less with fewer people,” he says.

Mr. Noonan also predicated a “very dramatic” announcement shortly by the IMF, based on the way they operated in other countries.

He believe the first line of intervention by the IMF and other EU institutions would be the banking system rather than the government’s four-year budgetary plan and restructuring,  “which could be done very quickly,” and will be dealt with before anything else, The Irish Times writes.

He suggest the IMF might follow the “good bank/bad bank” formula used in the US where the good bank traded and took deposits and bad bank took the liabilities.

“It also took the creditors who had lent them money with senior debt and they had to work out their situation over years to get what they could out of it,” Noonan points out.

Last week Michael Noonan made the following statement in the Irish Dãli (parliament/House of Representatives):

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