Dragi letter December

Treaties have made it impossible for the European Central Bank (ECB) to buy sovereign debt directly from Member States. However, the ECB could, at least, do so on secondary markets, in order to lower the average interest rate. Mario Draghi has promised a so-called ‘unorthodox’ monetary policy, suggesting implicitly that quantitative easing of sovereign bonds could be applied, but nothing has yet been seen. We sincerely need such an initiative in order to combat deflation in the eurozone: economists such as Paul Krugman have been recommending it for years, and a grassroots movement is building up which questions the general legitimacy of the ECB. When will the ECB decide to buy sovereign debt on secondary markets? How much would it buy, and during which periods and from which countries?

This week I received Mr Draghi’s reply, in which he states the following

Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate. This may imply adjusting the size, pace and composition of the ECB’s measures. Such measures may entail the purchase of a variety of assets ‒ one of which could be sovereign bonds, as mentioned in your letter.

This just goes to show the power of the ECB, what it can do when the urge takes them.

It also leaves me to wonder though about what was done to Ireland on the Promissory Notes, the €31bn of debt that has been imposed on us, €31bn that even Patrick Honahan, Governor of the Central Bank of Ireland, has admitted was printed to bail out the financial investors in two failed Irish banks, Anglo Irish Bank and Irish Nationwide, not to bail out the Irish people.

Why is the ECB still insisting that we have to shoulder that entire €31bn debt burden? When this money was being printed back in 2010 in what was also an emergency situation, why couldn’t they have been inventive in ensuring the burden was spread across the entire eurozone rather than being imposed on Ireland alone, why can’t they be inventive now and find a way of lifting this burden from us?

I look forward with interest to Mr Draghi’s replies to the further six questions I’ve put to him and to the ECB just before Christmas, on exactly how they can justify leaving Ireland to shoulder this burden on its own.