Tuesday, 4 February 2020

Ballyhea Says Know - Report to GUE/NGL


Today, Feb 5th 2020, the Ballyhea Says Know campaign was meant to be presenting a Report commissioned by Luke Ming Flanagan MEP, to the GUE-NGL group of the European Parliament.

Events got in the way, however, or a specific event – the General Election on Feb 8th.

This is taken from a chapter in that report headed ‘Ballyhea Says Know’, and focuses on the Promissory Notes.

It’s worth going over that again, because far from this all being water under the bridge, we are still caught in a full flood. Anyway, the extract from the Report:


Through 2009/10, in spite of ECB rules specifically precluding its use for insolvent banks, three bodies – Central Bank of Ireland, the ECB and the Irish government – colluded to use the EU’s Emergency Liquidity Assistance fund (ELA) to create €31 billion for two insolvent banks under immediate threat of bankruptcy, Anglo Irish Bank and INBS (Irish Nationwide Building Society).

The fig-leaf the ECB used to enable this to happen was the Promissory Notes written by then Irish Finance Minister Brian Lenihan, literally notes written promising that if those two banks couldn’t repay those billions, the Irish government (that’s us, the people of Ireland) would do so.

Those Promissory Notes, claims the ECB, made insolvent banks solvent. It didn’t, of course, and everyone involved knew that; just a few years later both Anglo and INBS ( now combined and known as IBRC, the Irish Bank Resolution Corporation) were wound up – liquidated, bankrupt.

It was classic switch-and-bait, private bank-debt transformed to public debt, and the Irish people are the ones paying the price. I say ‘paying’, because that price is ongoing.

The quid-quo-pro for the creation of those billions is that the ECB now insists that the Central Bank of Ireland, having created that €31 billion, must now take it back out of circulation – destroy it, in plain English. And, since March 2011, that’s exactly what it’s been doing.

In 2011, the Central Bank of Ireland destroyed €3.1 billion;

In 2014 it was €0.5 billion;

In 2015, €2.0 billion;

In 2016, €3.0 billion;

In 2017, €4.0 billion;

In 2018, €3.5 billion;

In 2019, €2.0 billion (the NTMA announcement of the latest of those – all are in tranches of €500 million – is here (1)).

That’s €15 billion destroyed by the Central Bank of Ireland since 2014, a further €3.1 billion in 2011 – €18 billion in total, with another €13 billion still to go. And bear in mind – a billion euro is one thousand million euro, that's €1,000,000,000.


Over the past few years the Irish Times ran a series of almost identical articles, probably taken straight from a Central Bank briefing, claiming that great profits were being made for the national exchequer with the sale of the above-mentioned IBRC Promissory Note bonds. Yet in an article (2) headed ‘Central Bank’s €17bn profits from crisis fighting a mirage for taxpayers in June 2019, they published the reality, a reality which they themselves refuse to confront – it’s merely a sophisticated three-card-trick, those ‘profits’ just a portion of the billions borrowed from Peter to pay Paul for the ECB Promissory Notes, who then destroys the bulk of those billions but gives our exchequer a little ‘dividend’, a false profit (pardon the pun). From that article:

The Central Bank’s profits over the past five years have been rocket-fuelled by €7.3 billion of special gains from the sale of more than half of the €25 billion of government bonds it received in 2013. This was under a complex restructuring of so-called promissory notes that had been used by the State to rescue Anglo Irish Bank and Irish Nationwide…

So who’s been buying the bonds from the Central Bank? None other than the State’s National Treasury Management Agency (NTMA). Since 2014, it has bought €15 billion of the such bonds and duly cancelled them.

A little-known note in the NTMA’s most recent annual report, for 2017, disclosed for the first time what it has been stumping up to acquire the bonds. It records that it paid a €1.95 billion premium that year to buy €4 billion of bonds from the Central Bank. That’s almost 50 per cent above the nominal value of the bonds.

The figure corresponds with the gain recorded by the Central Bank for the same year on the sale of bonds.

The note also highlights that the NTMA paid a €1.35 billion premium to acquire bonds from the Central Bank in 2016 – again, exactly the gain recorded by the bank for that year.

To acquire the bonds, of course, the agency has to go out and raise long-term funds on the debt markets. The extraordinary profits being generated by the Central Bank as it sells its IBRC-linked bonds are effectively a zero-sum game when looked at it from the point of view of taxpayers.’

Yes, even the ‘profits’ are borrowed, the so-called ‘premium’, but no, it’s not a ‘zero-sum’ game, as we shall now make clear.


The €25 billion in government bonds received by the Central Bank in 2013 referred to above are the ECB Promissory Note bonds, €6 billion having already been accounted for in 2011 and 2012. Interest rates at the time were higher than they are now, but that didn’t matter; our NTMA created those bonds, they were held by our Central Bank, we were paying the interest on them to ourselves. As long as that situation pertained those bonds would cost us nothing in interest, and when they eventually matured, we would pay the principle to ourselves – this was a zero-sum ‘game’, and thus could the €31 billion that had been created for Anglo and INBS expire, have died a natural debt (pardon the pun).


All of this changes, and changes drastically, when the Central Bank sells the ECB Promissory Note bonds.

To buy the P Note bonds our NTMA must first raise billions from the markets, for which purpose they issue new government bonds; immediately, we are paying interest on those new bonds, and when they mature, a future generation will have to pay the principle.

Interest rates have gone down in the years since 2013, which is why the NTMA now pays a ‘premium’ to buy the P Note/IBRC bonds; this is the ‘profit’ made by the Central Bank on the sale as outlined in the Irish Times article above, but the truth is that this now becomes a loss to the national exchequer, a huge loss.

You see, what’s not pointed out in the last paragraph of that article above is that as paper-debt has become real debt, this is not now a zero-sum game for the Irish people; in fact it will eventually cost us the full €31 billion, plus interest.


There was no alternative – that’s what we were told. But there was an alternative, as outlined by three senior IMF officials who were involved with the Troika during that period.

 First, Ashoka Mody, in an RTE interview with Gavin Jennings in April 2013, the transcript of which appeared in a report (3) in broadsheet.ie:

Gavin Jennings: “From what you’re saying to me, you make it sound like the construct for our rescue was wrong.”

Mody: “Yes, indeed, it was. It was wrong in the sense that there was never a real possibility, or let me put it a little bit more mildly, the risks of the program succeeding were such that the complete reliance on austerity was not a reasonable way to go.”

Jennings: “I’ll talk to you more about growth in just a moment. But, going back to what you said, if austerity was wrong, judging from your comments on both burning private and sovereign bondholders, and not following that policy, was that too a mistake in your view?

Mody:I would say yes. The answer is yes. When everyone says ‘yes, it was a mistake’, there is an immediate reaction that doing so would have had catastrophic implications. And my reading of history on sovereign defaults is that such defaults can be well managed in a way that accommodates the interests of various parties and that the notion that a sovereign default, or a default especially on creditors to banks who have become quasi sovereign bondholders is very…the notion that those defaults are extremely costly, is historically just not true. We know from the evidence that we have that in a way bondholders treat that as almost welcome because it reduces the uncertainty and normally there is a very quick return to market, the output losses are relatively minor. And so the history is very clear on the cost of doing so.”

Jennings: “So, if imposing austerity on Ireland was wrong, or a mistake; if not allowing any burning of bondholders, whether official, sovereign or private was a mistake; you were centrally involved in that program. I know Ajai Chopra was very much the public face of the IMF mission to Ireland. But you were centrally involved in constructing this bailout. How much responsibility do you take for those errors.”

Mody: “Yes, so, obviously, I have to take the responsibility in…but I’m in very good company in taking responsibility in this. There were many parties involved. And my role really was to bring such matters to the attention of people who finally made these decisions.”’

 Echoing the sentiments of Mr. Mody was his IMF colleague in Dublin, Mr. Ajai Chopra. In September 2013, the following report (4) in the Irish Independent headlined ‘You paid too much for bailout: Chopra tells us’ contained the following:

Ireland paid too much for the bailout because the EU wouldn't let the country burn bondholders, the IMF chief who designed the rescue plan says. Ajai Chopra, former deputy director of the International Monetary Fund, insisted to the Banking Inquiry that the ECB forced Ireland into a bailout with an ultimatum. He added: “Ultimatums are not the right way to do business.”

Burning the bondholders, which the ECB would not permit, could have made a sizeable cut in Ireland’s debt, according to Mr Chopra. Europe’s decision to veto the burning of senior bondholders meant a “higher burden for Irish taxpayers and a higher public debt”, he said.

Mr Chopra told Deputy Michael McGrath there might have been about €16bn outstanding to senior bondholders when the bailout programme started. “As a rule of thumb, if you discounted those by half, you get about €8bn, which is several percent of GDP,” he said…

Mr Chopra explained that while it was not possible to be sure of the figures, “I think it could have been a sizeable contribution – yes.” And he thought the Irish taxpayers had been made to bear a disproportionate burden as “there was not sufficient burden-sharing with senior bondholders”.

On the ultimatum from the ECB, he said this happened because the European Commission and the ECB often put euro-wide concerns above those of individual member states… Assistance from the ECB was provided begrudgingly and Europe’s decision to solve each country’s financial problems individually worsened the crisis, he said.’

A few months later, in Feb 2014, and per a report (5) headlined ‘IMF wanted senior bondholder ‘bail-in’ for Ireland – Fund official says EU partners in troika rejected bail-in option’ in the Irish Times of a ‘closed’ ECON committee meeting in the European Parliament, yet another IMF official, Reza Moghadam (IMF’s director for Europe), supported the testimony of his two erstwhile colleagues:

‘A senior IMF official has said the fund favoured a bail-in of senior bondholders during the Irish bailout, but the position was not supported by its EU partners.

Addressing a closed meeting of the economic and monetary affairs (Econ) committee at the European Parliament last week in Brussels, the IMF’s director for Europe, Reza Moghadam, said the Washington-based fund had supported the option to bail-in unsecured senior debt in the case of Ireland, but the European members of the troika did not agree, believing it would have caused problems for other sellers of debt on the markets.

They also expressed a fear that such a move would spark contagion and could undermine the entire the euro zone. Mr Moghadam was addressing members of the Econ committee as part of an ongoing parliamentary inquiry into the activities of the EU-IMF troika.’


In an article in the Irish Times (6) from Jan 2014, then Bundesbank president Jens Weidmann said Germany had supported Ireland’s preference to burn senior bondholders in 2010, but was blocked by the European Central Bank.

Bundesbank president Jens Weidmann has said the German central bank supported Ireland’s unsuccessful efforts at the ECB in 2010 to secure debt write-downs. In an interview with The Irish Times, Dr Weidmann said the Bundesbank did not share the concerns of then ECB president Jean-Claude Trichet that debt write-downs of investors posed too great a stability risk for the currency union.

“In that debate the Bundesbank has always considered it important to make investors bear the risks of their investment decisions,” said Dr Weidmann. “And already then [it] favoured contributions of investors in the event of solvency problems, especially for banks that are to be wound down.”

The Bundesbank says it was “all but alone” in supporting Ireland against Mr Trichet, but that the majority of the ECB governing council backed Mr Trichet.

In negotiations with former minister for finance Brian Lenihan, and in subsequent letters late in 2010, Mr Trichet closed the door to burden-sharing with investors.

Mr Trichet wrote that “any additional capital requirements” for restructuring Anglo Irish Bank and other Irish institutions requiring assistance “must be covered with cash injections by the government”.

For the Bundesbank, however, the principle of debt-sharing being requested by Ireland was one that should have been maintained despite the extraordinary financial circumstances of the time.’


Mr.  Weidmann’s view that write-down of debt didn’t pose a great stability risk is borne out in the conclusions of an IMF Working Paper (7) from October 2008 on the ‘Costs of Sovereign Default’:

‘We investigated the empirical basis of the costs of sovereign defaults in its different versions. Our findings suggest that default costs are significant, but short lived. Reputation of sovereign borrowers that fall in default, as measured by credit ratings and spreads, is tainted but only for a short time…

Perhaps the most robust and striking finding is that the effect of defaults is short lived, as we almost never can detect effects beyond one or two years.’


For nine years, almost on its own, Ballyhea Says Know (originally Ballyhea Says No) has campaigned on this issue, with particular emphasis now on the Promissory Notes.

From the above, had they chosen to fight, it’s clear that the Fine Gael-led governments that were in place from 2011 could have undone some of the massive damage wrought by the Fianna Fáil-led administrations that had preceded them, could at least have challenged the ECB/European Commission on the legality and/or the legitimacy of what we were forced to do, the debt-legacy now passed on to several future generations. In particular, they could have supported us in our various challenges to the EU institutions on the Promissory Notes.

They didn’t.

This Report will now be presented in its entirety at the next GUE-NGL meeting, which will be held on March 4th. It is a comprehensive report, will itemise and summarise all that has driven this campaign since we first took to the road in Ballyhea on March 6th 2011.

On the Sunday after we’ve done that, March 8th at 10am, almost exactly nine years after it began, Ballyhea Says Know will march for the last time, our final regular outing in Ballyhea.

We’ve done our bit – it’s long gone the time for our elected politicians to take up this fight.