blood from a stone

By Luke Ming Flanagan

Everyone in Europe now knows about Quantitative Easing, what with the media everywhere (including in Ireland) broadcasting the fact that the ECB has just embarked on a programme of creating at least €1.14tn at the rate of €60bn per month up to September 2016 (that’s €1,140bn, or if you like to see all the zeroes, €1,140,000,000,000).

What very few know, because nobody in our media seems to be interested in informing them (Irish media especially, for whom this should be a major story), is that even as the ECB is creating all those tens of billions every month, in Ireland they are engaged in what I call ‘Quantitative Squeezing’, insisting that Ireland has to destroy €31bn, the legacy of the bailout of the failed creditors in Anglo Irish Bank and Irish Nationwide.

It’s a perversion of course, a total contradiction, the ECB creating money on the one hand so they can boost struggling EU economies, while with the other hand insisting that one of the smallest of those struggling economies – Ireland, population 4.5m – must destroy money. Of course we don’t have those billions (we owe over €200bn for God’s sake!) so we borrow it, raise it from the sale of the Promissory Note bonds (those being the result of the sell-out in February 2013 of future generations by this government, to ease the pressure on themselves in their annual budget) – then we destroy it.


The destruction process started in March 2011 when one of the first acts of the then new coalition government was to borrow and destroy €3.1bn. It continued in 2012, a sovereign bond created to take care of that year’s Promissory Note; actually that bond had to be for nearly €3.5bn just to raise the €3.1bn (there was a premium attached), and early last year the Central Bank sold off €500m of that bond. And destroyed that €500.

On Dec 23rd, two days before Christmas, they sold another €500m bond, the first shot in the new schedule. And promptly destroyed it. Push of a button, that’s it all takes, ‘extinguishing’ the money as Central Bank Governor Patrick Honahan told us he’d prefer us to put it. Patrick would actually prefer if we were all to think of it as not real money at all. But it’s real bloody debt, a debt that will be passed on to my kids and to their kids, 40 years of it.


The Quantitative Squeezing schedule is this:
2014/15/16/17/18: €500m/yr
2019/20/21/22/23: €1bn/yr
2024/25/26/27/28/29/30/31: €2bn/yr
2032: €1.5bn.
As those bonds are sold and the hundreds of millions destroyed, we start to pay interest on them. Then, in 2038, as the first of them reach their ‘mature’ dates we start to pay the principal. In total, and just on the €25bn element alone, the coupon (interest) and principal is conservatively estimated at €72bn; when the other €6bn is included, it will exceed €80bn – an average of over €2bn/yr.


It can be argued – and I might even agree – that this was an emergency situation back in 2010, that if those two banks were allowed fail it could have brought down the euro, the eurozone and possibly, the entire EU. That the ECB then would allow the misuse of Emergency Liquidity Assistance (the magic word in there is ‘liquidity’) to bail out two obviously insolvent banks is understandable. It might even be understandable (though here I’m far less inclined to agree!) that they had no choice at the time but to accept the Promissory Notes and thus the imposition of that debt on the Irish people. What is not understandable and not acceptable is why now, especially given that it has just embarked on this massive money-creation exercise, the ECB STILL insists that this money must be destroyed.


Back in 2010, in collusion with the Irish Central Bank and the Irish government, the ECB used its ingenuity to get around its own rules to enable the transfer of this debt to our shoulders; they should now again use that same ingenuity to get around their ‘monetary financing’ argument to lift that burden.

Burn those bonds, not the billions; at the very least stop the
sale/destruction cycle now, hold those bonds to maturity and let
them die a natural death in the vaults of the Irish Central Bank. With the €31bn already in circulation for the last five years, no country anywhere having to take or commit any money from their coffers, this course of action hurts no-one, costs no-one. All it takes is the will of the ECB. And our determination to make it happen.