Irish central bank governor Patrick Honohan writes:
The focus should be increasingly on measures that can help unblock growth. One dimension which, in my personal view, has not yet received the attention it deserves is the potential for mutually beneficial risk-sharing mechanisms. A variety of financial engineering options could be considered going beyond the plain vanilla bonds currently employed. Read more
The ECB is succeeding in its mission to wean Irish banks off emergency eurozone support – but at a cost. Data from the Irish central bank suggest that support for Ireland’s banking sector rose €18.9bn in the month to February 25 to stand at €70.1bn (red on the chart). ECB support fell €9bn to stand at €116.9bn (blue on the chart). This means that combined assistance rose €10bn to €187bn, a new record. As you can see on the chart, combined assistance (the total height of the bar) dipped in the month to January, but has now risen again, suggesting banks’ needs are growing.
For the Irish central bank, assistance to the banking sector (under “Other assets”) now constitutes more than a third of total assets. Indeed, assistance for banks is approaching half of the country’s GDP. As David Owen, chief European economist at Jeffries points out: “There is a school of thought that this €70bn or so of emergency liquidity is a contingent liability of the Irish state and so should be treated as such. If so, then outstanding Irish government debt-GDP could soon be heading towards 175 per cent. It will be interesting to see what the IMF says on the subject, when it publishes its assessment of the economy and debt dynamics 15 March.” Indeed it will.