The ECB stands behind the Irish banking system

Brian Lenihan reported as stating “The ECB stands behind the Irish banking system and ensures the stability of the Irish banking system” in the Indo. Unless he’s doing a solo run, if the bank guarantee submerges the state financially it’ll be the European’s and not the IMF riding to the rescue (see comments on this thread). Meanwhile, hot on the heels of their recently failed bond auction a British Cabinet Minister states that there is no shame in Britain asking the IMF for help. True, but why say this now?

  • Dave

    It’s difficult to judge which agency – the EU or the IMF, or a combination of both – that Ireland will go cap-in-hand to.

    Most folks believe that the Maastricht Treaty forbids one state from assuming responsibility for the debts of another state and forbids the EU from assuming the debts of any or all member states, citing Article 104 and Article 104 B:

    [i]ARTICLE 104
    1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (herein after referred to as ‘national central banks’) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.

    ARTICLE 104 B
    1. The Community shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. [/i]

    However, this “no bail-out” rule was always propaganda that was proffered to reassure the German people that all national debts would remain sovereign, and that they would not be forced to assume or underwrite the debts of other member states. That was a deliberate lie that their Europhiliac political leaders sold to them.

    Article 103 A is the bail-out clause.

    [i]ARTICLE 103 A:
    1. Without prejudice to any other procedures provided for in this Treaty, the Council may, acting unanimously on a proposal from the Commission, decide upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products.

    2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by exceptional occurrences beyond its control, the Council may, acting unanimously on a proposal from the Commission, grant, under certain conditions, Community financial assistance to the Member State concerned. Where the severe difficulties are caused by natural disasters, the Council shall act by qualified majority. The President of the Council shall inform the European Parliament of the decision taken. [/i]

    It is presented as applying to “natural disasters” but “exceptional occurrences beyond its control” broadens it to cover a multitude, and it is certainly broad enough to cover a domestic financial situation which all governments are keen to present as being a “global” disaster which is “beyond [their] control.” The downside is that the bail-out is subject to the Unanimity Rule, so it is highly unlikely that all member states would agree to a bail-out for Ireland and the other pigs that would hurry to the trough.

    However, and this is what Lenihan is getting at, I assume: Article 100 of the Lisbon Treaty makes the bail-out subject to QMV rather than the Unanimity Rule, so if we ratified the Lisbon Treaty then we would be in a position to be bribed with a bail-out to do so. I expect them to make us an offer in conjunction with their puppets, the Irish government.

    Here is the above bail-out clause as it is reworded in Article 100 of the Lisbon Treaty:

    [i]1. Without prejudice to any other procedures provided for in this Treaty, the Council, acting by a qualified majority on a proposal from the Commission, may decide upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products.

    2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.[/i]

    In reference to the British government, it is pretty obvious that they are preparing the British public for their own cap-in-hand approach to the IMF. Clearly, Browne recognises that his own Keynesian policy of borrowing money and squandering it is bound to fail so he wants to be in a position to borrow more of it when he has squandered his current supply and fail again. Yes, he is insane.

  • Mick Fealty

    Interesting spot Dave. These bank debts are unknowable at the moment; though I notice on ‘This Week’ on Thursday, they were taking it for granted that Ireland, Greece, Italy and Spain were all going to have to take from the new IMF money.

    Indeed, everyone seems to be taking it for granted but the Irish government. In the end, it won’t matter where the money came from, taking on the banks debts in their entirety was a hell of a risk. The G20 have simply prepared a landing.

    As for the UK situation, Soros on Newsnight was effusive about the direction the G20 proposals will take the world system; but it is clear that he thinks the UK is in over its neck primarily because of its abject dependence on the largest financial hub in the world. And Ireland will suffer for that too.

  • Comrade Stalin

    In the past, money from the IMF has come with conditions attached. If Ireland does accept this bailout, I wonder if it will be required to proceed with privatization of, for example, the state-owned utilities/CIE ?

    Ireland’s corporation tax policy is a constant source of annoyance for other EU member states. I wonder if an ECB loan to Ireland might be agreed by the states with conditions attached that would require Ireland to moderate this ?

  • George

    Dave,
    Here is the above bail-out clause as it is reworded in Article 100 of the Lisbon Treaty:

    I hate to be the one to shoot down one wing of this particular conspiracy theory bird of yours but the Article 100 amendment you cite about qualified majorities to replace the previous 103(a) is already in place via the Treaty of Nice.

    Lisbon doesn’t come into it so it isn’t a bargaining chip of any kind. This wording is already in place since Nice. You need to update your EU Treaties and Legislation book.

    As for the argument on Article 100 (former 103a) being used as a bail-out clause, that’s a much more open question. I have been unable to find any ECJ pronouncement on it so who knows what they could interpret it as meaning.

  • Dave

    Yeah, that does put a hole in the Lisbon ‘puppets’ theory, right enough – on the specified grounds only. Article 100 appears in the consolidated version of the Treaty Establishing the European Community after Nice was ratified.

    Article 100 does qualify the bail-out clause by claiming that it is “compatible with the ‘no bail-out’ rule” in Article 103, so perhaps that’s where you should be looking rather than for an ECJ interpretation. However, the cited Inter-institutional Agreement will now have been replaced with a new Inter-institutional Agreement, so good luck with that trail if you intend to follow it. And, of course, as the contents of that amendment are subject to the Council and QMV, they change the text of the qualification to whatever they want to change it to.

    I stand over the claim that there is a bail-out clause, contrary to how it is presented in Article 103. If the Germans knew that the Eurozone was to be established on the hidden principle that national debts are not sovereign and that they could end up liable for the debts of other states, they’d never have voted for the Maastricht Treaty that established it.

    [i]Declaration on Article 100 of the Treaty establishing the European Community:
    The Conference recalls that decisions regarding financial assistance, such as are provided for in Article 100 and are compatible with the “no bail-out” rule laid down in Article 103, must comply with the 2000–2006 financial perspective, and in particular paragraph 11 of the Inter-institutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure, and with the corresponding provisions of future inter-institutional agreements and financial perspectives.[/i]