ECB: Ireland must begin selling €25bn bonds

The ECB has issued a mild warning to Ireland that it must stick to its bargain to begin the sale of €25bn worth of bonds it converted from the Anglo Irish Bank promissory notes last year.

Part of the bank’s annual report investigated how it had performed on the issue of it not being allowed to engage in monetary financing — fund governments by buying their bonds cheaply — and concluded that “in general” the rule had been respected.

It added that the “liquidation of the Irish Bank Resolution Corporation (IBRC) raises serious monetary financing concerns. These concerns could be somewhat mitigated by the disposal strategy of the Central Bank of Ireland”.

A spokesperson for the ECB said the Governing Council thought that to some extent the deal was monetary financing and the advice was to sell the bonds — something that should have started already.

However, the general opinion was that, if the ECB was genuinely concerned, they would be following through with it. However, ECB president Mario Draghi has refused to comment on the matter publicly, confining himself to saying they had “noted it”.

The schedule attached to the promissory note transaction deals with bond sales, the Department of Finance pointed out. This states that the Central Bank of Ireland will sell the €25bn of bonds gradually, “but only where such a sale is not disruptive to financial stability”.

But they have also undertaken to sell a minimum of €500m worth of bonds by the end of 2014 and each year until the end of 2018, doubling the amount to €1bn a year to 2023 after which it would be €2bn a year.

It spreads the cost of repaying the promissory notes from seven to eight years, repaying the bonds over 34-35 years at a lower cost to the state including extra cash flow of around €20bn over the next decade and reducing the State’s deficit by around 0.6% of GDP annually.

Asked if they were putting the ECB under pressure to sell off bonds sooner, a source said that the issue had not been raised at the Governing Council meetings recently and there did not appear to be pressure from Berlin or elsewhere. The ECB also claimed it was not consulted by the Irish authorities on the law “allowing the immediate liquidation of the Irish Bank Resolution Corporation and safeguarding the position of the Central Bank of Ireland”.