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EBC expresses concern over Irish bailout package

Updated: 2010-12-20 09:23

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LONDON - The European Central Bank has expressed "serious concerns" that Ireland's bailout package could affect the institution's liquidity operations in the euro zone.

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In a position paper published on its website, 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 bailout agreed with the European Union and the International Monetary Fund.

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 the economy into the ground and sent ripples across the wider euro zone.

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 pound ($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 dollars as is now the case.

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

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