independent

Monday 21 April 2014

Ailish O’Hora: Markets not fazed by Draghi comments on Anglo promissory notes but should we be?

uropean Central Bank (ECB) President Mario Draghi. Photo: Reuters

BOND markets have taken the point made by ECB chief Mario Draghi that the institution will examine further the Anglo debt deal on the promissory notes in its stride.

Ireland’s five-year not yield climbed three basis points to 2.76pc this morning, hardly a budge really.

But should we be worried?

The answer is most likely no.

While Mr Draghi’s comments earlier this month that the ECB governing council had unanimously noted the Irish deal raised a few eyebrows because of the vagueness of the language, the truth is ECB chiefs rarely call a spade a spade.

And Mr Draghi’s latest comments come after German ECB governing council and president of the Bundesbank Jens Weidmann said the deal came close to breaking a ban on the monetary financing of Governments.

There is most certainly some politicking going on here.

The Germans are currently the paymasters of Europe and in a sense hold the keys to both the Bundesbank and the ECB.

In addition, the Germans are essentially seen as the guardians of both banks.

Herein might lie the crux.

At the time Mr Draghi said the board had taken note of the deal, there was no subsequent denial of the arrangement between the Irish Central Bank and the Government by the ECB Governing council.

This  was the sentiment echoed by Taoiseach Enda Kenny today when he was asked for his response to Mr Draghi’s comments.

He said the engagement with the ECB over the notes was with the institution and not individual members and that the promissory notes are gone.

So it seems even if some members of the ECB governing council like Mr Weidmann have reservations about the Irish deal, it still stands.

The promissory notes have effectively been swapped for €25bn in Government bonds with maturities of up to 40 years and annual payments of €2.1bn have been deferred.

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