Tue, Dec 21, 2010 - Page 10 News List

ECB concerned about Ireland bailout

‘CRITICAL ISSUES’:The eurozone’s central bank expressed concern that the draft law for the funding package doesn’t provide sufficient legal rights for its collateral security

Reuters, LONDON

The European Central Bank (ECB) has expressed “serious concerns” that Ireland’s bailout package could affect the institution’s liquidity operations in the eurozone.

In a position paper published on its Web site, the ECB also said legal flaws in Ireland’s bailout legislation could affect its rights over collateral security. The paper was dated Dec. 17, but it was not clear when it was published on the ECB site.

“The ECB has serious concerns that the draft law is insufficiently legally certain on a number of -critical issues for the Eurosystem,” it said in an opinion on draft Irish legislation to implement an 85 billion euro (US$112 billion) bailout agreed with the EU and the IMF.

The issues include “the scope of collateral rights of central banks given as security against ELA [emergency liquidity assistance],” as well the rights of the ECB and possibly other central banks in the eurozone.

Ireland’s parliament approved the bailout package on Wednesday after a banking sector crisis drove its economy into the ground and sent ripples across the wider eurozone.

The ECB said the draft law should not affect the central bank or the ECB’s ability to “enforce their rights including, without -limitation, the enforcement of security over any eligible collateral posted by any relevant institution.”

Irish sovereign debt was downgraded by five notches by Moody’s on Friday in a move likely to put extra pressure on the country’s already battered commercial banks.

The ECB set up a temporary £10 billion (US$15.6 billion) swap arrangement with the Bank of England on Friday, in a fresh bid to limit the problems facing the Irish banking system.

The ECB said its decision to set up a swap agreement with the Bank of England would allow the Irish central bank to provide liquidity in sterling to Irish banks in addition to euros and US dollars as is now the case.

Irish-based banks currently account for about a quarter of all ECB funding because of the fact that other banks refuse to lend to them.

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