Seanad debates

Thursday, 16 December 2010

Credit Institutions (Stabilisation) Bill 2010: Committee and Remaining Stages

 

2:00 pm

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)

Senator O'Toole has raised a very large question which would probably necessitate a full amendment to the European Union treaties. Every member state which participates in the euro has representation on the governing council of the European Central Bank through their governors. That is of considerable value to Ireland and other countries. When we linked ourselves to sterling, we had no influence with the Bank of England, although our link with sterling was only an alignment, not a currency union, whereas under this arrangement we have a voice within the European Central Bank. It may have been a voice spoken loudly to in recent times but it is still a voice. Likewise, the eurozone finance ministers meet in the euro group and have access to the President of the European Central Bank in that way, which again is of value to the country.

The wider question, which the Senator raised and which is a valid one, is whether the European Central Bank should be free of all political direction. The statute establishing the European Central Bank entrenches its independence of the political system, yet questions relating to currency, valuation and the regulation of banking are all highly political questions. As the Senator knows, different countries have different arrangements. For example, in the United States, the mandate of the Federal Reserve is far more extensive than simply managing a currency and ensuring there is no inflation. It extends to social and economic objectives. There are different arrangements in different currency areas.

A national central bank has become a branch office for the ECB in each member state. Essentially, that is the direction in which we have moved. If one takes the bank support measures which are in place and the facilities being provided by the European Central Bank, the facilities described as collateral depend on the giving of security to the European Central Bank. The relevant collateral is provided to the local institution directly from the European Central Bank. If one looks at the emergency liquidity arrangements which apply when, essentially, the institution needs cash and does not have any further collateral to offer, that is done by the national central bank, although the currency is euro. There is a sort of mystery in that arrangement but the risk is on the sovereign in regard to such lending to the institutions. There is merit in Senator O'Toole's point but there is a need for a wider debate in Europe not only about euro bonds but about the role of the Central Bank in the current crisis.

Comments

No comments

Log in or join to post a public comment.