By Luke Ming Flanagan
A few weeks ago I submitted a series of six questions for the ECB and its President, Mario Draghi. This week, through Twitter and through their website (though not yet through any direct reply from the ECB – they don’t do normal politeness, apparently), I got a reply. Not an answer – a reply.
Now I’ve been in politics for a number of years at this stage, have learned that you submit even the most carefully worded question more in hope than in confidence to the powers that be, those for whom NOT answering questions has been developed to an art form. This reply from Mr Draghi sets new standards.
The questions I asked were separate, itemised, specific, pointed, detailed; the reply is grouped, general, vague, can be summed up in the same tired old two-step tune that the likes of Mr Draghi have been singing since this crisis began – ECB good, Ireland and its government bad.
I don’t know if the ECB President wanted simply to show his disdain for the Written Question Procedure; maybe it was his disdain for the European Parliament as the only directly elected EU Institution; perhaps it was his disdain for the people of Ireland on whose behalf I ask these questions; maybe he was simply letting me know how little he thinks of me. No matter – he has succeeded in all those elements, and more.
This is not over. We have appealed Mr Draghi’s reply, will not rest on this issue until we get satisfaction.
Luke Ming Flanagan (GUE/NGL)
Subject: Price stability in the Irish property Market
Article 2 of the OBJECTIVES AND TASKS OF THE ECB states in part: In accordance with Article 127(1) and Article 282 (2) of the Treaty on the Functioning of the European Union, the primary objective of the ESCB shall be to maintain price stability.
During the so-called Celtic Tiger property prices – a major element of any economy- in Ireland were anything BUT stable, rising at an exponential rate: the inflow of the new cheaper euro currency into Ireland became a veritable tsunami, eventually swamped the country.
In Ireland then, why didn’t the ECB use its considerable power to perform that first, fundamental task, maintain price stability? When the crisis struck Europe, why was the ECB so unprepared, with no structures in place to deal with bank failure? Why did it leave itself so exposed, reactive rather than proactive, with ireland suffering most grievously from that unpreparedness?
Luke Ming Flanagan (GUE/NGL)
Subject: Necessity to destroy the Irish Promissory Note debt
Article 3 of the Treaty on European Union (by which the ECB is bound) also states in part: It (the Union) shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child.
The policies enforced on Ireland by the Troika – which included the ECB- have increased social exclusion and discrimination, reduced social justice and protection; as for solidarity between generations, the promissory Notes deal done in February 2012 transfers the burden of paying the debt of two debt slavery by the ECB insistence on its pound of flesh, that the €31.000m printed then by Central Bank of Ireland as an emergency measure to prevent possible contagion collapse across the EuroZone, and which has had no inflationary effect, has now to be taken back out of circulation – how is this protecting the right of Irish children? would the ECB agree to the destruction now of those bonds, or at least that they NOT be sold but held to die a natural death in the vaults of the CBI?
Luke Ming Flanagan (GUE/NGL)
Subject: Lack of oversight of the ECB in the Irish housing bubble
Article 3 of the Treaty on European Union (by which the ECB is bound) also states in part: The Union shall… work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress…
The only one sector of the Irish economy in significant growth after 2001 was the property sector with more houses being built than in the UK, which has 13 times our population * a massive imbalance, surely. Why didn’t the ECB use its considerable powers to intervene in this rapidly increasing reliance on a single employment sector, which might have prevented the subsequent mass unemployment in that area? Where was the foresight, the oversight? In an article in the Financial Times in 1998, economist Paul de Grauwe predicted almost to the letter the crisis that would follow were the euro to be launched in the guise proposed, with critical design flaws. Does the ECB accept any culpability for its own lapses both before and in the early years of the crisis in not preparing for those possible/ probable scenarios, leaving the Irish authorities to come up with their own solutions?
Mario DRAGHI President
Mr Luke Ming Flanagan Member of the European Parliament
Frankfurt, 3 March 2015 L/MD/15/119
Re: Your letters (QZ 4-QZ 7)
Honourable Member of the European Parliament, dear Mr Flanagan,
Thank you for your letters, which were passed on to me by Mr Roberto Gualtieri, Chairman of the Committee on Economic and Monetary Affairs, accompanied by a cover letter dated 16 January 2015. My response to questions Z55-Z60 submitted by your colleague MEP Matt Carthy contains replies to a large number of the important questions raised in your letter, in particular those regarding financial stability in Ireland. In that reply, I explained in particular the role of the ECB in the design of the EU/IMF programme and why the ECB was, and still is, of the view that the decision of the Irish government not to “burn” senior bondholders at the time was the right decision, a matter to which you also referred. I would therefore ask you to consult this document.
As regards the liquidation of Irish Bank Resolution Corporation (IBRC) Ltd. on 7 February 2013, the Governing Council of the ECB was informed of this by the Governor of the Central Bank of Ireland on that same day. In the opinion of the ECB, the liquidation of IBRC raises serious monetary financing concerns. Monetary financing by the Eurosystem is, as you know, prohibited by Article 123 of the Treaty on the Functioning of the European Union. The ECB already stated in its Annual Report for 2013 that the disposal strategy of the Central Bank of Ireland could go some way towards mitigating these concerns.
Turning to another matter you raised, as you rightly point out, the strong concentration of employment growth in one sector was indeed a significant symptom of the growing vulnerability of the Irish economy in the pre crisis period. These developments were not appropriately detected ahead of the crisis, despite the fact that a few observers and institutions had expressed concerns about the sustainability of the Irish asset bubble. However, the single monetary policy for the euro area would not have been the policy tool with which to effectively correct these imbalances in an individual euro area country. Among the instruments available at the time, domestic policies (e.g. adequate tax policies, macro-prudential measures and banking supervision) would have been best placed to address such developments.
In the meantime, the Macroeconomic Imbalances Procedure was established in 2011 with a view to preventing and correcting imbalances such as those that developed in Ireland ahead of the crisis. Furthermore, the banking union and in particular the adoption of the Bank Recovery and Resolution Directive have provided national and EU institutions with a new set of tools to deal with bank failures. Unfortunately, neither of these tools was available at the time when the property bubble was developing in Ireland or at the beginning of the crisis.
Finally, as you are aware, the ECB was not at the time, and is still not, the authority responsible for adopting or implementing adequate national prudential regulations, tax policies and structural reforms, and only took over a number of micro- and macro-prudential supervisory tasks on 4 November 2014. Your questions pertaining to these policy areas, therefore, could also be addressed to the relevant national and/or other European authorities.
Yours sincerely, [signed]