Peter Mathews writes in the Irish Independent about loaned losses to Irish banks from 2008 amounted to €75 billion. Currently Ireland has to pay back a promissory note of €31 billion to cover losses for Anglo-Irish Bank. The Irish Central Bank originally created €45 billion out of fresh air called Exceptional Liquidity Assistance to help out the Banks. This created money was not owed to the ECB in any way. When the money was paid back to the Central Bank, these loans would disappear. The ELA created to cover the promissory note in Anglo Irish Bank, i.e €31 billion could be simply written off. This can only be vetoed by a 2/3 majority of the  ECB.

Throughout 2008 and 2009 there was a slow motion run and controlled implosion of the Irish banking system. In response, the ECB advanced massive loans to the Irish banks and in turn the Central Bank of Ireland responded by providing Exceptional Liquidity Assistance (ELA) to the Irish banks.

Professors Karl Whelan, Brian Lucey and Dr Stephen Kinsella recently made excellent presentations to the Oireachtas Committee on the issue of the promissory notes and ELA.

They showed how the Central Bank of Ireland effectively created €45bn ELA money “out of thin air”. The Central Bank of Ireland doesn’t owe any of this money to the ECB, they said.

On a once-off basis, money was created and pumped into the Irish banks to keep them solvent.

When the Irish banks repay these ELA loans, the Central Bank of Ireland simply retires them. The money literally disappears.

Therefore, the €31bn ELA money created by the Central Bank of Ireland, and advanced to IBRC to cover promissory notes, can and should be written off.

The Irish taxpayer was completely shafted.

Losses which should have been borne by bondholders have, wrongly, been dumped on the people of Ireland.

Normally, when banks collapse, their funders do not get all their money back. In Ireland, bondholders were redeemed all their money with interest at the insistence of the ECB.

Since the end of 2008, as payments to bondholders fell due, neither the banks nor the State had the resources to pay them.

That is where the ECB stepped in. It lent approximately €135bn to our banks to enable them to repay the bondholders and also to replace lost deposits.

The bill for the banking woes fell on the Irish taxpayer but under normal capitalist rules bond-holders would take the hit. Mathews proposes a solution, that the Irish Central Bank tops up its ELA to the tune of €75 billion and writes this off. All that’s required is the consent of 7 other members of the ECB. 

The ECB became fully complicit in dumping this bill onto the people of Ireland.

Under normal capitalist principles, the ECB would not have shielded bond- holders from the consequences of their investments. They would have to accept that Ireland is “taking one for the team”.

Taking all this into account, again under normal capitalist principles, the ECB could not object to writing off up to €75bn of the loans it advanced to the Irish banks.

If the ECB is unwilling to do this, then the Central Bank of Ireland should top up its Exceptional Liquidity Assistance loans to the Irish banks to €75bn (in the case of AIB and Bank of Ireland substituting ELA for ECB loans) and then write it off.

The ELA can be writted off as follows

The ECB has a limited ability to prevent the Central Bank of Ireland from doing this. It can only veto a proposal by the Irish Central Bank with a two-thirds majority of its governing council.

There are 23 members of the governing council, including Ireland’s representative, Governor Patrick Honohan.

So, if he and seven other members of the governing council support the proposal to write off the ELA money there is nothing Ms Merkel, Mr Sarkozy, Mr Draghi or anybody elsecan do about it.

With all the congratulations Ireland gets about paying back the bank’s its loans and the austerity cuts, its actions from the ECB / EU not words are what count. Here is a simple solution being completely ignored, yet trillions can be lent to banks.

If the European political establishment really believes we’re doing such a good job, the best way to show it is to agree to lighten the debt load on the people of Ireland by €75bn.