Thursday 18 January 2018

Noonan: Confusion over how ECB bond buying actually works

Banks must be prepared to hand over tapes of internal conversations over the bailout, Finance Minister Michael Noonan warned
Banks must be prepared to hand over tapes of internal conversations over the bailout, Finance Minister Michael Noonan warned
Colm Kelpie

Colm Kelpie

THERE is a misunderstanding in Ireland, even among top economic thinkers, over how the European Central Bank's government bond buying programme operates, Michael Noonan has said.

The Finance Minister said leaving the bailout without a precautionary credit line neither rules Ireland in or out of accessing the Outright Monetary Transactions (OMT) programme.

It has been speculated that opting to go it alone without the added safety net of a credit line would ban Ireland from the ECB scheme.

“There is a misunderstanding in Ireland, even at the highest level of economic thinking, about OMT,” Mr Noonan told TDs this morning. 

OMT was unveiled in September last year after the ECB pledged to do whatever it takes to preserve the Euro, calming financial markets, but stirring criticism from Germany's Bundesbank.

The minister said he had sought assurances from top ECB officials, including Mario Draghi during which he had a “long conversation” about the as yet-unused programme.

He told the Dail that it wasn't designed as a solution for individual countries, but to intervene when there was a systemic problem affecting the eurozone as a whole.

“For OMT, according to Mr Draghi, it's for a systemic crisis in the Euro and it's something that would apply across the Eurozone. If we got into that position then it would apply to Ireland as any other country,” Mr Noonan said.

“Of course, any county would then avail of it, it would be under conditions. So there would be some form of programme. It doesn't rule us out, or rule us in, or change our position at all actually and there's a serious misunderstanding in Ireland about how OMT operates.”

Meanwhile Mr Noonan also told the Dail that a precautionary credit line wouldn't have been a strong enough insurance policy if a wider problem occurred in the eurozone.

“Applying for a precautionary credit line would not actually cover the risk should a wider problem emerge in the euro area, for example arising from the stress tests in late 2014, not that I am suggesting that such a risk might materialise,” Mr Noonan said.

He said the fact that there had been no reaction from the international markets showed that the Government’s decision was “both correct and timely”.

The minister said the twice-yearly post programme surveillance is “quite normal” and part of the wider governance changes put in place at European level.

“These new governance arrangements provide reassurance to the markets. They provide an early warning system if problems begin to emerge, they reduce the risk of contagion spreading from one member state to another, and they increase peer review pressure to help ensure responsible policies are pursued by all Member States in the euro area,” Mr Noonan said.

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