Irish Banks borrow and funnel money back to Europe

Irish lenders besiege central bank for emergency loans
Irish banks are running out of collateral they can use to borrow from the European Central Bank, turning instead for emergency support from their own central bank on an unprecedented scale.

The cement mixer which was driven into the gate of Ireland’s Parliament Building, in protest at the bailout of Ireland’s banks.

The latest data shows that Anglo Irish Bank and other lenders had borrowed €51bn (£43bn) from the Irish central bank by the end of December, under an obscure progamme listed in the balance sheet as “other assets”.

This comes on top of €132bn in loans from the ECB itself, the figure normally tracked by analysts and itself 24pc of all ECB lending.

“This is a horror story: it shows the cataclysmic condition of the Irish banking system,” said Tim Congdon from International Monetary Research. “The banks have borrowed €183bn in total, or 110pc of Irish GDP. They have burned through all their capital and a lot of their deposits as well. This is going to end up on the national debt”.

The actions of the Irish central bank are authorised by Frankfurt, but fall into a grey area of monetary policy since they appear to involve creation of money outside the normal control of the ECB’s governing council.

The use of Ireland’s emergency liquidity assistance programme (ELA) raises further questions since the quality of collateral is unacceptable for normal ECB operations. The volume of borrowing has begun to level off after a surge in November.

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Separately, the Spanish media reported that a mission from the International Monetary Fund was arriving in Spain this week to analyse the country’s debt sustainability and may discuss a `flexible credit line’, akin to precautionary overdraft facilities offered to Mexico and Poland.

The IMF’s flexible credits are designed to “encourage countries to ask for assistance before they face a full blown crisis”. They are not the same as bail-out, and are only avaible to “very strong perfomers” facing “tough times” because of temporary funding pressures. They entail no stigma, and do not come with strings attached.