Jitters calmed and unity maintained as Central Bank role offers compromise

Everyone in the ECB remembers how Weidmann’s predecessor, Axel Weber, and Asmussen’s, Jurgen Stark, each left the central bank in protest at its previous bond-buying initiative. These public displays of internal disaffection did little for confidence in the ECB’s ability to fight the crisis.

Weidmann is now seen as the arch protector of the rules that the ECB should not engage in the illegal printing of money to finance member states, the ultimate bulwark against any watering down of the institution’s core principles.

By contrast, European sources say Asmussen became convinced relatively early that something should be done for the Irish. His declaration last September that negotiators were under “heavy time pressure” to settle the matter was seen in Dublin as a big step forward.

Slow progress

Progress was painfully slow, however. After the Government stepped up diplomatic pressure for a deal in the autumn, there was some anticipation in Coalition circles that a deal might be possible before the budget in December. It was not to be.

While Irish politicians and media may have a bottomless appetite for debate on the infamous “prom notes”, the question only recently rose to the top of the ECB’s agenda. The bank has a multitude of issues to tackle at any one time and there was no great rush to settle the Irish question long before the March 31st deadline.

But with the political temperature in Dublin rising relentlessly, the Government started agitating again for a breakthrough at the start of the year and kept the pressure on.

While the basic Irish proposal finally reached the governing council a fortnight ago, it fell foul of concerns that any initiative in which the Central Bank of Ireland would hold the new bonds to maturity could be read as straightforward monetary financing.

The compromise, tabled in recent days by Irish negotiators, was that the new bonds would be held as tradable instruments by the Central Bank in anticipation that they would be sold on later to private investors. The argument, therefore, is that the Central Bank is stepping into the breach temporarily.

Intense speculation

In Dublin on Wednesday afternoon, there was intense speculation that a dinner meeting of the governing council that night would back the deal (or not object to it). In the event, certain members of the council were said to have sought more time. It was only at noon in Dublin yesterday that word came through that the deal was definitively on.