ECB allows Irish Central Bank to counterfeit 51 Billion Euros

by Mike “Mish” Shedlock
Originally posted January 18, 2011

http://globaleconomicanalysis.blogspot.com

Ireland central bank counterfeited 51 billion Euros out of thin air. The amount is not backed by government bonds. Nor was it a loan from the ECB or anyone else. The money is counterfeit in every sense of the word.

Please consider the facts as depicted in Central Bank steps up its cash support to Irish banks financed by institution printing own money. (see below)

The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money. The figures also provide the latest evidence that responsibility for funding Ireland’s broken banks is being pushed increasingly back on to Irish taxpayers. The loans are recorded by the Irish Central Bank under the heading “other assets”.

A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.

Other Assets? What Other Assets?
It’s OK to print money as long as the ECB is notified?! Excuse me, but this is in direct violation of every EU treaty. Besides, counterfeiting is a crime everywhere. There are no “other assets” in play. The bookkeeping is fictitious. This printing is not backed by bonds. No one in their right mind would buy such bonds. The Irish Central Bank simply counterfeited 51 Billion Euros out of thin air and distributed the money to Irish banks.

Currently, there is talk about the need to expand the size of the €440bn bail-out fund. This little exercise has me wondering, “why expand anything?” Let’s solve the problem by letting Greece print Euros, Italy print Euros, Spain print Euros, Portugal print Euros, and Belgium print Euros.

As long as you are counterfeiting, and as long as the ECB doesn’t mind, why not have every country print enough Euros to pay back all European sovereign debt? Every country can be debt free in seconds. I hope everyone understands the sarcasm. This is an amazingly slippery slope and I am surprised Germany is not screaming bloody murder over it.

“Emergency Loans”
Ambrose Evans-Pritchard talked about this mad state of affairs in Irish lenders besiege central bank for emergency loans. However, he too missed the counterfeit angle.

Irish banks are running out of collateral they can use to borrow from the European Central Bank, turning instead for emergency support from their own central bank on an unprecedented scale.

Above: The cement mixer which was driven into the gate of Ireland’s Parliament Building, in protest at the bailout of Ireland’s banks. Photo: AFP

The latest data shows that Anglo Irish Bank and other lenders had borrowed €51bn (£43bn) from the Irish central bank by the end of December, under an obscure progamme listed in the balance sheet as “other assets”. This comes on top of €132bn in loans from the ECB itself, the figure normally tracked by analysts and itself 24pc of all ECB lending.

“This is a horror story: it shows the cataclysmic condition of the Irish banking system,” said Tim Congdon from International Monetary Research. “The banks have borrowed €183bn in total, or 110pc of Irish GDP. They have burned through all their capital and a lot of their deposits as well. This is going to end up on the national debt”.

The actions of the Irish central bank are authorised by Frankfurt, but fall into a grey area of monetary policy since they appear to involve creation of money outside the normal control of the ECB’s governing council. The use of Ireland’s emergency liquidity assistance programme (ELA) raises further questions since the quality of collateral is unacceptable for normal ECB operations. The volume of borrowing has begun to level off after a surge in November.

Separately, the Spanish media reported that a mission from the International Monetary Fund was arriving in Spain this week to analyse the country’s debt sustainability and may discuss a `flexible credit line’, akin to precautionary overdraft facilities offered to Mexico and Poland.

Grey Area?
Excuse me for asking but what precisely is “grey”? I see no grey here. Ireland has no assets the EU will take as collateral, so the EU allows Ireland to place fictitious asset on the books and counterfeit 51 Billion Euros to give Irish Banks. No doubt the ECB will claim it’s “temporary” as if temporary counterfeiting is OK. In nature but not size, this is worse than anything the Fed did, and Trichet just looks the other way.

Irish Prime Minister Going Down With The Ship
Irish Prime minister Brian Cowen is toast. If not on January 18 in a vote of confidence measure, then in March, in a general election. He has a shockingly low 14% voter approval rate. Brian Cowen faces a vote of confidence today by his Fianna Fail party, with one of his most senior ministers seeking to topple him ahead of a general election. Seventy-one lawmakers will vote at a meeting beginning at 5:30 p.m. in Dublin. Cowen, 51, called for the secret ballot on Jan. 16, saying he expects a “ringing endorsement” even after Foreign Minister Micheal Martin said he’d oppose him.

Support for the party, in power since 1997, has dropped to 14 percent, according to a poll carried out this month. The largest opposition party, Fine Gael, has 35 percent support, according to the poll, carried out by Red C for Paddy Power Plc. The party won 40 percent of the vote in the 2007 election. Cowen is expected to win the vote, according to odds offered by Paddy Power Plc, Ireland’s largest bookmaker. Cowen is 11-4 on to win the vote.

Victory tomorrow may only be a temporary reprieve for Cowen. Based on the polls, the party may lose more than half its seats in the upcoming election. Environment Minister John Gormley of the Green Party, the junior partner in Cowen’s coalition government, has said March 25 would be a reasonable date for election.

Note the arrogance of Cowen calling for a “ringing endorsement”. I can’t wait until they ring the final bell for this guy, hopefully today. However, Cowen would not have called call for this vote unless he thought it was in the bag. The fact that is is a “secret ballot” instead of a roll call in Parliament makes a victory more likely in my estimation.

Anyone openly endorsing this clown deserves to go down in flames, but no one can prove how they voted. I am hoping for an upset, and without any data or facts to back it up, I think Cowen’s removal is closer to a 50-50 shot than 11-4.

Regardless of how this vote turns out, Cowen will be out on his ass in March. Is that the point of this counterfeiting now, to get as much “on the books” before the opposition takes over?

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Central Bank steps up its cash support to Irish banks financed by institution printing own money

by Donal O’Donovan
Saturday January 15 2011

EMERGENCY lending from the ECB to banks in Ireland fell in December, the first decline since January 2010, but only because the Irish Central Bank stepped up its help to banks.

The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money.

ECB lending to banks in Ireland fell from €136.4bn in November to €132bn at the end of December, according to the figures released by the Irish Central Bank yesterday. At the same time, the bank increased its emergency lending by €6.4bn, bringing the total it is owed to €51bn.

The latest data does show a levelling off in demand for the loans. Emergency lending to banks shot up €16bn in November, but overall demand for the loans only increased by €2bn in December when ECB and Irish Central Bank figures are combined. However, the figures also provide the latest evidence that responsibility for funding Ireland’s broken banks is being pushed increasingly back on to Irish taxpayers. The loans are recorded by the Irish Central Bank under the heading “other assets”.

A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.

News that money is being created in Ireland will feed fears already voiced this week by ECB president Jean-Claude Trichet that inflation is a potential concern for the eurozone.

However, a source at the ECB said the European bank is comfortable that the amounts involved are small enough not to be systemically significant. The ECB has been lending money to banks in Ireland at just 1pc, as long as the banks can put up acceptable collateral.

The volume of those loans surged from €95bn in August 2010 to €136.4bn in November, as Irish banks repaid their bondholders without being able to refinance in the private sector. The ECB loans prevented banks that could not raise funds from the private sector running out of cash after repaying their own lenders and meeting deposit withdrawals.

December’s fall in ECB lending was the first decline since January 2010. The ECB total includes loans to Irish banks and banks operating out of the IFSC. Around 66pc of the ECB loans have been made to domestic Irish banks, according to Michael Cummins of Glas Securities. The ECB is known to be keen to wean Irish banks off its loans, but the increase in lending from closer to home shows banks are still not able to access funds in the private sector.

Disruption

The data released by the Central Bank of Ireland included details of a €12.3bn “fine-tuning operation” by the bank. The data suggests the €12.3bn has been loaned out by the bank on a short-term basis. It was the first time any such transaction has been recorded over the December period since 2003. A spokesman for the Central Bank said the transaction had been flagged by the ECB in September.

He said the ECB said it would carry out three “fine-tuning operations”, including one on December 23. These operations are aimed at smoothing out any disruption that might occur when the ECB’s regular six-month and 12-month lending deals with banks end and have to be refinanced. People in the market said the large scale of the latest “fine tuning” is likely to be down to the difficulty of rolling over large amounts of debt over Christmas.