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Ireland among first to lose voting rights at the ECB

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Patrick Honohan

Patrick Honohan

Collins Dublin, Gareth Chaney

Patrick Honohan

Ireland's Patrick Honohan will be one of the first central bank governors to temporarily lose voting rights at the European Central Bank (ECB) under a controversial scheme to simplify management of the bank.

From the start of next year voting rights on the governing council of the ECB will rotate between groups of large and small countries.

The move is a result of the expansion of the euro area to 19 states. All countries will still have a representative on the council, but each will in turn temporarily lose their formal vote in decision making.

On January 1 central bank governors including Ireland's Patrick Honohan and his opposite numbers in Spain. Greece and Estonia will become the first to lose voting rights, the ECB said yesterday.

Meanwhile, the ECB said it saw far less demand than expected yesterday for its new cheap four-year loans to banks, raising doubts about a stimulus package it hopes will stave off deflation and revive the euro zone economy.

The launch of the scheme, a central plank of the ECB's efforts to coax reluctant banks to lend, saw the euro zone's central bank hand out €82.6bn of the €400bn it had on offer to 255 banks.

That was well below the €133bn take-up forecast by a Reuters poll of 20 money market traders. Banks will get a second chance on December 11 to apply for the cash.

The money is granted at ultra-low interest rates on condition they lend it on to businesses. The uptake in December is predicted to be €200bn.

Berenberg Bank chief economist Holger Schmieding called the low demand "a disappointing result for the ECB" that cast doubt on the bank's hopes of injecting €400bn into the economy through this scheme.

"Simply offering more liquidity at more generous terms to banks awash in cash will not make a huge difference to the outlook for growth and inflation," he said.

The key problems were weak demand for credit in the euro zone, exacerbated by economic conflict with Russia over Ukraine and uncertainty in the banking sector ahead of the publication next month of an ECB health check on major banks. The success of the so-called TLTRO cheap credit project is important for the euro zone, whose 18 countries are grappling with record-high unemployment and fading economic growth.

Previous rounds of cheap ECB loans for banks, and borrowing costs close to zero, have done little to boost lending to companies, with much of the money instead spent on government bonds. Critics fear a similar fate for the new scheme.

Market reaction was muted. The euro rose briefly against the dollar, while benchmark German government bond futures dipped.

Traders said the low take-up raised expectations the ECB may eventually take more radical monetary stimulus measures to boost economies. (Additional reporting by Reuters).

Irish Independent