Professor Patrick Honohan:

So, bullet points 1 and 3 were fully agreed by the ECB, and so the average life of Government bonds that were used in this transaction was 34.5 years. My idea was 40 years and it was whittled away to 34.5, which I thought was long enough. The second point was challenged by ... on legal grounds, by ECB staff, who felt that a commitment to hold the bonds to maturity would create serious concerns about possible inconsistency with Article 123 of the treaty. Our lawyers in both the Central Bank and independent lawyers, were engaged by, I believe the ... well, either Central Bank or by the Government, I can't remember, felt that this argument was wrong and that we could hold them to maturity. But, the ECB held out very firmly and said there had to be a prospect of disposing of these bonds so that they would not be held to maturity.

And, over the following months, there were detailed discussions and negotiations, and in the end a form of wording was agreed where ... which was acceptable to the Government, despite the statement in the letter, which said that they would be disposed ... the bonds would be disposed of as quickly as possible, subject to financial stability conditions.

So, you can see the financial stability argument is there, and then, in addition, there was a schedule which was a minimum schedule, and that minimum schedule was back-loaded, but it was going to ensure that the bonds were disposed of well before maturity, thereby disposing of the bulk of the legal concerns.

So, I would say we ... those three principles were there and we had to ... Irish side had to concede, to some extent, on the second one. Turned out, however, because of the financial structure of the bonds, floating rate notes and so forth, that the great fall in interest rates and in the spread of the Irish Government against German bonds, that this second condition no longer was vital for the concerns of the Department of Finance and the fiscal concerns of the Government, that actually, disposing of the bonds into stable financial conditions at these lower spreads gave you as much advantage as hanging onto them, in terms of the profit flow of the Central Bank. So, actually everything has worked out. The design was fail-safe and it has worked quite advantageously. So the Central Bank has since then been disposing of these bonds and continues to do so. The financial stability conditions allow that and it's disposing of them more rapidly than envisioned and will continue to do so.