Ireland set for €8bn more ECB support

IRELAND is in line for €8bn of further borrowing support after the European Central Bank (ECB) signalled it would expand the Pandemic Emergency Purchase Programme (PEPP) in December.

The predicted purchase of an additional €8bn in Irish Government debt next year is on top of the €10bn expected to be purchased by June next year under current plans. The ECB already bought €11bn of Irish debt in the year to September.

Bond buying by the ECB is intended to bring down the cost of borrowing for national governments.

“Most economists expect an expansion of the PEPP scheme by circa €500bn to be announced in December, also with an extension to end-2021,” said Conall MacCoille, chief economist at Davy. “A €500bn expansion of the PEPP to €1.85trn would imply a further €8bn of ECB purchases of Irish debt in 2021,” he added.

Yesterday, ECB president Christine Lagarde said there is “little doubt” that policy makers will agree on a new package of monetary stimulus in December as coronavirus infections and renewed lockdowns threaten a double-dip recession.

The comment to reporters, after policy makers agreed to keep their stimulus settings unchanged for now, highlights how the resurgent disease has derailed the region’s upturn.

“The euro area economic recovery is losing momentum more rapidly than expected,” Ms Lagarde said. “We agreed that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting.”

The euro dropped to the low of the day and European stocks climbed on the remark.

Officials decided to hold off on changes for now, keeping the pandemic bond-buying programme at €1.35trn. But the president signalled that the next step could be broader than just ramping up that programme, saying staff are already working on policy options, and “I’m not ruling out any of the tools that we have”.

“The market will be expecting quite a lot for December,” said Anatoli Annenkov, an economist at Societe Generale, adding that yesterday’s message “was very clear, unusually clear in pre-announcing action, which is not normally what the ECB does”.

While policy settings might not change until December, Ms Lagarde pledged to use the full flexibility of the bond programme, saying that “in the meantime we are not going to just stand still”. That signals purchases could be accelerated. Only half the programme has so far been used.

She also suggested policy makers could take further steps in the interim if needed, arguing that “if we have to meet on short notice, we will do so. We stand ready for that”.

New coronavirus lockdowns announced by Germany and France in the past 48 hours have highlighted how the euro area’s outlook has darkened considerably since the ECB’s September meeting. The summer rebound has given way to a possible double-dip recession, forcing governments to provide more aid and pressuring the central bank to keep borrowing costs low.

Even before the new restrictions, euro area services were shrinking, and confidence measures have slipped. That’s put pressure on both the ECB and governments to ramp up support and protect millions of jobs and businesses.

Ms Lagarde stressed the need for regional fiscal aid to be implemented and delivered, rather than just planned. That’s after EU governments have been stuck in negotiations with the European Parliament over outstanding details of the region’s recovery fund, raising doubts about whether the first slice of funds can be distributed in the first half of 2021 as scheduled.

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