Wednesday 26 November 2014

Fears that 'historic' debt deal is illegal

Published 17/02/2013 | 04:00

Maarten van Eden

CONCERNS are growing that the Government's 'historic' agreement with the ECB on the promissory notes is illegal.

CONCERNS are growing that the Government's 'historic' agreement with the ECB on the promissory notes is illegal.

Writing exclusively in today's Sunday Independent, the former chief financial officer of Anglo Irish Bank, Maarten van Eden, describes the deal as being in breach of the ECB's "fundamental rule against monetary financing".

ANALYSIS PAGES 4, 25, 26

Elsewhere in today's paper, UCD economist Colm McCarthy also expresses his fears for the future of the prom note agreement, saying: "Central Bank governor Patrick Honohan expressed confidence in an RTE interview last Sunday that the promissory note deal with the ECB would not unravel. A week later, the unravelling appears to have commenced."

Commenting on the action the Government should take in the event that the ECB "backtracks" on the deal, Mr McCarthy writes: "It will be time for the Irish Government to test the legality of what was done by Trichet's ECB in 2010.

"There are explicit provisions in the ECB statute which entitle a member state to challenge the acts of the ECB at the European Court of Justice."

Quite apart from Mr McCarthy's views, the entry into the debate of Mr Van Eden – a career banker with over 30 years' experience internationally – on the legality of the prom note deal certainly won't be welcomed by Finance Minister Michael Noonan and his officials.

The re-emergence of the straight-talking Dutchman, who resigned his position with Anglo in 2011, citing his unhappiness with the Department of Finance and the NTMA, comes does just days after German Bundesbank president and ECB governing council member Dr Jens Weidmann voiced his own concern on the legality of the Irish deal.

ECB president Mario Draghi heightened those concerns even further last Friday with his confirmation that the deal would be re-examined.

While the validity of the agreement may shortly become the subject of a renewed and far more intense debate at ECB level, Mr Van Eden also asks what the potential consequences are for the euro and for Europe should it remain in place.

He says: "What does this precedent imply down the road for countries such as Spain and Italy, or other countries for that matter? What is the implication for the integrity of the euro if all countries were to monetise 20pc of national income in debt?"

Turning to the immediate impact on the Irish taxpayer of the decision to liquidate the IBRC, he says: "The Government has decided to abandon the orderly wind-down of Anglo, which will cost Ireland unnecessarily and is going to exacerbate creative accounting with even more creative accounting and legal posturing. It is effectively capitalising interest and deferring debt, which, by the way, was one of the abhorred practices of the bank that is no more."

Mr Van Eden believes the State could suffer an immediate loss of up to €3bn in the coming months as the IBRC's special liquidator Kieran Wallace either sells the loans on its books or transfers them over to Nama.

On this, he says: "First and foremost, expediting the sale of the remaining €15bn of net loan assets of IBRC will mean a loss of approximately 20 per cent (that is €3bn) over and above what could be realised in an orderly wind-down of IBRC as a banking institution. This is nothing new and was analysed extensively in the past restructuring plans."

Mr Van Eden also argues that unlike other liquidations, the IBRC's special liquidator will be required to repay all its creditors in full on the basis that the "Government has clearly engineered the liquidation and therefore, on the basis of legal advice given in the past, one will not be able to successfully invoke default in court."

Asked by the Sunday Independent to respond to the suggestion that the Government had 'engineered' the liquidation of the IBRC, a spokesman for the Department of Finance said: "There has been no formal declaration of insolvency.

"The directors have not informed the department that their bank had become insolvent. The liquidation of IBRC occurred on foot of, and pursuant to, an Act of the Oireachtas."

Irish Independent

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