ECB preparing review of whether promissory note deal broke rules

ECB opts not to cut interest rates despite inflation falling to record low of 0.7%

European Central Bank  President Mario Draghi at the the monthly ECB news conference in Frankfurt on Thursday. Photograph: Reuters

European Central Bank President Mario Draghi at the the monthly ECB news conference in Frankfurt on Thursday. Photograph: Reuters


The European Central Bank is still collecting information regarding last year’s promissory note deal to examine whether the arrangement was in line with monetary financing rules.

ECB president Mario Draghi said yesterday that all necessary information was being collected about the arrangement, which saw the Irish Central Bank swap the promissory notes used to recapitalise Anglo Irish Bank with long-term government bonds.

It is expected that the review will be undertaken within the next six weeks.

It is a year since the Government announced the arrangement, reducing the cost to taxpayers of the Irish bailout by an estimated €20 billion.

The European Central Bank, which played a central role in the promissory note arrangement and backed the swap arrangement, said last February that it “took note” of the deal. However, it stressed that it would have to be reviewed to examine its compliance with monetary finance rules. Germany, in particular, had concerns that the deal, which it said came dangerously close to monetary financing of a euro zone member state by a central bank, something that is prohibited by article 123 of the EU treaty.

Discussion focused on the length of time the bonds would be held by the Irish Central Bank. The Central Bank in Dublin declined to comment on the matter when contacted by The Irish Times.

The ECB refrained from cutting interest rates yesterday at its monthly meeting in Frankfurt, despite inflation falling to a record low of 0.7 per cent in January.

The ECB left the benchmark rate at a record low of 0.25 percent, following a rate cut in November. Inflation across the euro zone has been falling persistently over the last few months, and is now well below the ECB’s mandate to maintain inflation “close to but below 2 per cent” for the euro zone.

Speaking at a press conference following the meeting of the 24-strong governing council in Frankfurt, ECB president Mario Draghi said last month’s inflation rate had been “lower than generally expected”.

‘No deflation’
He dismissed suggestions that the euro zone was close to the kind of deflation that characterised the Japanese economy in the late 1990s.

“There is certainly going to be a subdued inflation for an extended, protracted period of time, but no deflation,” Mr Draghi told reporters.