ECB's Draghi hails note deal

European Central Bank President Mario Draghi testifies before the Committee on Economic and Monetary Affairs at the European Parliament in Brussels today. Photograph: Eric Vidal/Reuters

European Central Bank President Mario Draghi testifies before the Committee on Economic and Monetary Affairs at the European Parliament in Brussels today. Photograph: Eric Vidal/Reuters

Mon, Feb 18, 2013, 00:00

European Central Bank president Mario Draghi said today the promissory note deal was a "positive" step for Ireland, despite reservations from Germany’s Bundesbank.

The accord, which will see the promissory notes exchanged for long-term bonds held by the Central Bank, will ease Ireland's borrowing needs by up to €20 billion over the next decade.

Speaking at a meeting of the Economic and Monetary Affairs Committee of the European Parliament this afternoon, Mr Draghi said the deal will be reviewed by the ECB in its annual assessment later this year. Mr Draghi said the disposal of the bonds in a way that ensures "compatibility with financial stability" would be "crucial" to Ireland’s restructuring.

He  said the opportunity has "not necessarily" passed to object to Ireland's deal. "We will assess the compliance with Article 123 at the proper opportunity," Mr Draghi told European lawmakers in Brussels today, referring to a prohibition on central banks financing governments. "If it does not" comply "we will see what legal remedial action needs to be taken," he said.

Former ECB executive Jürgen Stark has joined Bundesbank criticism of Ireland, describing the new promissory note arrangement as a clear breach of the bank’s prohibition of monetary financing. Dr Stark’s criticism follows fresh criticism from the Bundesbank in its monthly report yesterday that the deal underlines “increasingly stronger and more problematic inter-linkage between monetary and fiscal policy in the European monetary union”.

These arguments reflect a long-term fear of German monetary hawks that the ECB, in its efforts to assist in resolving the eurozone crisis, has broken its own rules, compromised its
independence and made itself beholden to politicians.

Dr Stark said yesterday the arrangement with Ireland was a further demonstration of “the ECB’s new understanding of crisis management”.

“The ECB’s contractual basis and core mandate shift further into the background,” he wrote yesterday in “Die Welt” daily.

Earlier, the Bundesbank said the involvement of the Irish Central Bank in the promissory deal is “problematic”. In its monthly report, the German central bank highlighted what it described as "the increasingly stronger and more problematic inter-linkage between monetary and fiscal policy" in the European monetary union.

"The European Stability Mechanism, which should be responsible in this regard, has been established to provide any help to individual member states in servicing debt," it said. It highlighted what it described as "the increasingly stronger and more problematic inter-linkage" between monetary and fiscal policy in the European monetary union. "The European Stability Mechanism, which should be responsible in this regard, has been established to provide any help to individual member states in servicing debt," it said.

Meanwhile, Minister for Social Protection Joan Burton dismissed suggestions that the deal is in danger of unravelling, saying it was “generally recognised” that the agreement was helpful to Ireland and the European Union.  She also reiterated that savings from the deal should be availed of this year despite resistance from the troika to any such move.

The Government is facing resistance from the troika against any move to use gains from the Anglo Irish Bank promissory note deal to soften next year’s budget.

“I think the troika, no more than myself, must be very, very aware of the difficult news that unemployment in the euro zone countries is at 11 per cent and overall in the EU at 10 per cent. They are shockingly high figures, and in Ireland it’s 14.6 per cent,” Ms Burton said in Dublin this morning.

"The critical thing is the promissory note deal gives Ireland a small bit of extra leeway in relation to helping people get back to work and I would like to see the Budget framed in the context of helping people get back to work, and we have that bit of extra leeway from the promissory note deal.”

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