The European Central Bank has expressed serious reservations about its lending capacity to further European Members. The recent loan of €85 billion (£72 billion) to Ireland hampers its capacity to lend others, it observed.
The bank further noted that the potential flaws in the recently drafted Irish legislation may limit the republics ability to provide collaterals for future borrowings.
Credit rating agency Moody’s had sharply cut the debt rating of Ireland on Friday.
In a report published on its website, the bank said: “The ECB has serious concerns that the draft law is insufficiently legally certain on a number of critical issues for the euro system”. The bank goes on to express its concern over the quality of collaterals of the republic it holds in the event of a default.
The bank criticises the powers granted to the Finance Minister Brian Lenihan, stating that the draft law ‘interferes significantly’ with the rights of shareholders and creditors of the republics financial institutions.
“Furthermore, the ECB suggests further clarification that the rights of the central bank and the ECB, as creditors of any relevant institution, will not be affected,” it observed.
The bank clarified that it is expressing its opinion at the request of Ireland’s Finance Minister on the draft legislation, which empowers him to take steps to ensure the country’s financial stability.
The bank welcomed the minister’s move seeking the banks opinion about “the need for an accelerated legislative procedure” but said it would have “appreciated being consulted at an earlier stage”.
Last week the republic was granted a three year loan of €22.5 billion by International Monetary Fund (IMF). The funds are the first tranche of a combined EU – IMF bail-out package.
The government had agreed to a series of spending cuts and tax hikes as a precondition for the loans.