David McWilliams: Ireland should ‘Play ECB Card’

From David McWilliams – Time To Play ECB Card:

Burden sharing doesn’t go far enough… The bank debt has nothing to do with us. We are already paying in negative equity, unemployment, higher taxes, lower services and emigration for our mistakes: we are carrying our burden.

If the IMF deal means we pay one red cent of the debt of those banks, this deal will collapse because it will be immoral and financially mendacious. That the Irish Government’s possible reluctant decision to represent the Irish people and not bank creditors is hailed as progress shows how pathetic our politics has become…

[2011-Feb-07: added this extra clip for clarity – Rebel-Alliance.org]

The ECB is the focus now. Forget the bondholders. They take what we decide to give them, but we should be working on the mechanism whereby the ECB funding (all €90 billion of it for the covered banks) and the Irish Central Bank liquidity (about €35 billion at the end of October) can be converted into shares in the banks.

As the central banks self-define themselves as ‘‘the lender of last resort’’, they can find a new mechanism to take shares on their balance sheet. After all, the lender of last resort is obviously more likely to lose out than any other lender. In fact, when you think about it, central banks were set up to be defaulted on because, by the time they step in, everyone else has stepped out.

Because they print the money, central banks do not have the same pressure on their balance sheets as companies do. So if the ECB has to take a loss on the liquidity it provided, it doesn’t really matter. It can simply make an entry on its financial statement to account for the loss.

All this debt in the system that is causing the problems is wasted money that was spent during the boom. It is the ‘investment’ in the housing market from 2004 onwards.

Those investments have gone south, and there will be no return on them. In any market, when an investment does not work out, the investors lose their money. Irish mortgage holders have lost money, developers have lost money, builders are going bust. And yet the debt is still hanging around. It needs to go the same way as the Celtic tiger and be consigned to history.

The ECB has the power to solve this problem: failure to exercise that power will put the future of, not only the Irish economy, but also of the euro, at risk.

This is our trump card and we must have the courage to play it. The deal is simple. If they don’t do the deal willingly, we need to default and see what happens.

And do you know what will happen? They will find a mechanism to take the shares of Irish banks onto their balance sheet. And the crisis will be over, because they will not risk the euro and all that political capital to teach the Irish a lesson.

Read more.

This entry was posted in Accountability, Bankers' Bailout, Budget, Debt Default/Restructuring, ECB/IMF, Economy, EU, ireland, Leo Varadkar versus the World, Solutions and tagged , . Bookmark the permalink.

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