Sunday 28 December 2014

ECB will get more radical to fight slump risk – Noonan

Published 21/06/2014 | 02:30

Lithuania's Prime Minister Algirdas Butkevicius (L-R), central bank governor Vitas Vasilauskas and Minister of Finance Rimantas Sadzius show off Lithuanian 1 euro coins to the media in the Lithuanian Mint in Vilnius June 16, 2014. The first Lithuanian euro coins are being minted before the country will join the euro zone on January 1, 2015. REUTERS/Ints Kalnins (LATVIA - Tags: POLITICS BUSINESS)
Lithuania's Prime Minister Algirdas Butkevicius (L-R), central bank governor Vitas Vasilauskas and Minister of Finance Rimantas Sadzius show off Lithuanian 1 euro coins to the media in the Lithuanian Mint in Vilnius June 16, 2014. The first Lithuanian euro coins are being minted before the country will join the euro zone on January 1, 2015. REUTERS/Ints Kalnins (LATVIA - Tags: POLITICS BUSINESS)

THE European Central Bank (ECB) is likely to take even more radical measures in an attempt to fight a threat of Japan-style deflation, Finance Minister Michael Noonan has said.

Earlier this month the ECB cut interest rates to a record low and launched a series of measures to pump money into the sluggish eurozone economy. It pledged to do more if required.

Christine Lagarde, the head of the International Monetary Fund (IMF), said on Thursday that the ECB should consider buying assets, including sovereign bonds, on a large scale if inflation in the eurozone remains low.

That has already been done in the US in what looks to have been a successful effort to pump cash into the economy, and revive spending.

Despite that, it remains controversial, especially in Germany where so-called loose money is associated with damaging hyper-inflation.

But after a meeting of European finance ministers yesterday, Mr Noonan said the policy – dubbed quantitative easing – could now happen here if needed. "My perspective on it is what was announced last week was the first step and the next step would be asset purchases,'' he said in Luxembourg.

"But I'm not sure of the timing on that. It will depend on circumstances.''

Mr Noonan also said the ECB's plan to give cheap loans to banks that commit to lend to businesses was a "very dramatic move".

ECB president Mario Draghi announced that Frankfurt was making €400bn in cheap loans available to banks that commit to use the funds to boost lending to businesses.

Loophole

"There was a big shift just 10 days ago when Mario Draghi announced a total new approach to channelling liquidity, channelling money through the central banks in the member states to be given out to invest in small and medium sized enterprises,'' Mr Noonan said in Luxembourg.

"So that's a very significant change which we hope will contribute to growth in the European economies and jobs.''

Separately, European finance ministers moved to close a loophole that has allowed multinational companies to cut their tax bills by exploiting different rules in different countries.

The move is separate to the in-depth investigation announced last week by the European Commission into tax arrangements involving Apple and Ireland.

"The aim is to close a loophole that currently allows corporate groups to exploit mismatches between national tax rules so as to avoid paying taxes on some types of profits distributed within the group,'' ministers said in a statement.

The amendment to the Parent Subsidiary Directive is aimed at preventing cross-border companies from exploiting the law and planning their operations to avail of double non-taxation.

Ministers also agreed that Lithuania will become the eurozone's 19th member in January. Estonia and Latvia have already adopted the euro.

Outgoing Economics Commissioner Olli Rehn said there was now a "Baltic full house'' in Europe.

Irish Independent

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