Ireland avails of secret banks arrangement for debt swap

Ireland is making use of a secret arrangement between eurozone central banks to ensure its controversial debt swap doesn’t fall foul of a ban on monetary state financing, according to sources.

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There are limits on how many of its own government’s bonds a eurozone central bank can hold in its investment portfolio to make sure it doesn’t directly finance the state, the people said on condition of anonymity.

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The Irish central bank risked exceeding that limit when it assumed €25bn of government debt as a result of Ireland’s seizure of Anglo Irish Bank Corp, they said.

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To avoid breaching the rules, the Irish central bank will be allowed to borrow unused capacity from counterparts in the 17-nation bloc, the people said. One suggested the extra capacity would be provided by the Eurosystem of Central Banks rather than from individual central banks that have room to spare in their investment portfolios.

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The procedure is permitted under the confidential Agreement on Net Financial Assets, or ANFA. A spokesman for the Frankfurt-based European Central Bank, which has never published the terms of ANFA, declined to comment on the Irish case. The Irish central bank also declined to comment.
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Irish Examiner

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