Draghi says ECB will study Irish deal on debt

Ireland’s promissory note deal will be reviewed by the European Central Bank as part of a scheduled annual review, according to the bank’s president, Mario Draghi.

Addressing MEPs in Brussels yesterday, Mr Draghi said the deal would be examined later in the year in the context of the bank’s annual assessment of whether member states are in conformity with article 123 of the ECB’s treaty, which forbids the bank from engaging in monetary financing.

Disposal policy

Mr Draghi said the Irish Central Bank’s disposal policy regarding the bonds will be “crucial in the future”.

The agreement reached earlier this month on recasting the debts of Irish Bank Resolution Corporation involves the replacement of the promissory notes with long-term Irish government bonds, with maturities of up to 40 years, which would be sold down gradually by the Irish Central Bank.

The issue of the Irish Central Bank’s ownership of the bonds was raised in the Bundesbank’s monthly report yesterday.

It points out that the Central Bank ultimately pays interest on the new bonds to the rest of the euro system at the main refinancing rate, while the Government’s interest payments are collected as net income by the Central Bank and can be used for distributions to the Government at a later date.

Asked if the opportunity to object to the deal had passed, Mr Draghi replied: “No, not necessarily,” adding that if the deal was found to have breached the bank’s rules, legal remedies would have to be examined.

“We will assess the compliance with article 123 at the proper opportunity and on that occasion we will see whether the transaction between the Irish Government and the Irish Central Bank complies with article 123,” he said. “If it does not, we will see what legal remedial action has to be taken.”

Mr Draghi also indicated his belief that Ireland would make a successful exit from its bailout programme by the end of this year.

“Ireland has been on track on, I would say, virtually all parts of the programme with remarkable success, and the achievements have been really very, very meaningful.

“There are still parts of it in the financial sector where further action is needed,” he added, “but by and large it has really performed admirably well. So I think the programme will have, if I am not mistaken, a natural date of expiration at the end of this year – then it will be judged.”

On currency intervention, Mr Draghi said that while the euro’s exchange rate was not a policy target for the ECB, it was important for growth.