ECB will not give Greek concessions to Ireland

THE ECB has said it will not extend any concessions it may make on its Greek bonds to Ireland or other bailout countries.

THE ECB has said it will not extend any concessions it may make on its Greek bonds to Ireland or other bailout countries.

The bank's governing council agreed to keep its benchmark interest rate unchanged at 1 per cent yesterday, expressing cautious confidence in the euro zone outlook.

ECB president Mario Draghi downgraded last month's fears of "substantial" to "high" downside risks amid signs of economic stabilisation, aided by the positive effect of an ECB flood of unlimited low-interest liquidity to cash-strapped euro zone banks.

After he announced agreement in Athens on the reform proposals by the Troika, Mr Draghi refused to rule out swapping Greek bonds held by the Frankfurt bank with the EFSF bailout fund.


He said such a deal, viewed as one way of closing a funding gap in Greek finances, would classify as forbidden monetary financing if any profit or losses from the sale went through member state governments.

Mr Draghi left open the door to losses being absorbed by the ECB's national central bank members, before insisting any such Greek deal would be a one-off.

"Greece is unique for everything. We don't want to repeat any experience. I haven't said what the ECB is going to do," said Mr Draghi, adding that the Irish Government "ought to be praised for constant progress making in reforms" in light of "enormous challenges".

The ECB president welcomed last month's agreement on a fiscal treaty by 25 EU states as a "a first timid step towards a fiscal union" in which "all countries can stand on their own by themselves without the need to be continually subsidised by others".

Mr Draghi said the ECB's programme to pump unlimited liquidity into banks continued to have a positive effect and had avoided a severe credit crisis in the euro zone. However, it was still too early to determine whether the ECB programme had achieved its major aim: a measurable boost to the real economy credit flow.

Mr Draghi said all requests for credit were vetted "stringently" and should be seen as a business decision and not a "stigma" for each respective bank.

He said some banks that have dismissed the facility as "undignified for a serious bank" have themselves made discreet applications to this and other ECB special facilities.

Mr Draghi said there was "increasing evidence" that euro zone economic stabilisation was on track, but that uncertainty remained on the global economy, sovereign tensions and credit markets.

The ECB was not concerned about imbalances in the euro zone's Target 2 system, through which banks settle their payments.

Some economists, particularly in Germany, view large German Target 2 claims as a second, hidden bailout in the euro zone, but Mr Draghi insisted this was a natural side-effect of ongoing imbalances in the interbank lending market.

"Normally you don't observe high imbalances because each country interbank market would function," he said. "When interbank lending becomes stressed, countries not stressed accumulate claims to countries in stress conditions. It doesn't imply any more risks to creditor countries."

Derek Scally

Derek Scally

Derek Scally is an Irish Times journalist based in Berlin