Following signals from Mario Draghi that the European Central Bank intends to slow its Quantitative Easing programme, Fianna Fáil Spokesperson on Finance Michael McGrath has expressed concern at the lack of clarity around the ownership of Irish Government Debt related to the programme.
Deputy McGrath said, “In March 2015 the European Central Bank announced its Public Sector Purchase Programme otherwise known as quantitative easing (QE). The programme involved the ECB and other Eurozone Central Banks buying mostly national government bonds. In so doing, the ECB was providing much needed liquidity to the markets and to the economy as a whole. It also had the effect of reducing the interest rates charged on Irish Government debt.
“Since then the ECB has bought up nearly €2 trillion worth of Government debt with some of it undoubtedly Irish Government debt. It is currently purchasing around €20 billion worth of Government debt a month. In recent weeks the ECB announced that it will reduce the monthly purchases to €15 billion from September 2018 and will cease altogether in 2019. According to the Central Bank of Ireland, Irish Government Debt currently stands at €136 billion as of the end of April 2018. In a response to a Parliamentary Question, the Minister has confirmed that as at the end of 2017 over €27 billion of that has been bought up by the QE programme with €21 billion currently owned by the Central Bank of Ireland.
“I am concerned that the Minister is unable to confirm when these bonds will mature. The consequences for the Irish taxpayer of all this is enormous and should not be underestimated. We are told that Ireland needs to refinance over €50 billion in debt over the next 5 years. It is unclear as to how much of this €50 billion is owned by the Central Bank or other Eurozone Central Banks.
“If the European Central Bank begins to reverse the quantitative easing programme, as the Federal Reserve is currently doing in the US, by selling government debt back to the market it would mean that the Irish taxpayer may have to pay significantly more interest on the debt we are due to refinance. In a worst case scenario, if there is an economic slowdown and Ireland needs access to funds from the market, the cost of that funding will be significantly greater. This only serves to highlight the importance of a Rainy Day Fund whereby the need to go to the market will be reduced.
“In the meantime I believe the Minister needs to seek clarity on the situation from the European Central Bank. We need a strategy on how this is managed over the next number of years. Nobody is denying that the ECB quantitative easing programme has been hugely beneficial to the European economy but its inevitable unwinding needs to be managed,” concluded Deputy McGrath.