Business World

Monday 18 March 2019

ECB tipped to buy Irish bonds but Bundesbank boss voices concern

Two women walk past an ATM at Spain's lender bank Bankia in Madrid yesterday. The nationalised bank posted first-half losses of more than €4.3bn on yesterday, highlighting
the need for capital from a European rescue of Spanish banks that is unlikely to arrive before the end of September. REUTERS/JUAN MEDINA
Two women walk past an ATM at Spain's lender bank Bankia in Madrid yesterday. The nationalised bank posted first-half losses of more than €4.3bn on yesterday, highlighting the need for capital from a European rescue of Spanish banks that is unlikely to arrive before the end of September. REUTERS/JUAN MEDINA

Thomas Molloy

THE European Central Bank is likely to buy Irish and Portuguese bonds under plans to purchase peripheral debt -- even though there hasn't been any hint of this before now, analysts said yesterday.

The ECB has been "pretty resolute" in emphasising that the programme, which is expected to be unveiled on Thursday, will be a monetary operation aimed at reducing exchange-rate risks, Royal Bank of Scotland rate strategists Harvinder Sian and Biagio Lapolla said.

The programme might be seen as a fiscal operation if it only involved purchases of Spanish andItalian bonds.

Finance Minister Michael Noonan has repeatedly called for some kind of bond-buying programme, which could help drive down the cost of borrowing for countries in trouble.

Yields on Irish bonds are below the levels seen in the lead-up to the 2010 bailout, prompting the National Treasury Management Agency to begin selling bonds again.

Speculation that the ECB's change of heart will benefit Ireland came as the head of Germany's central bank told the German newspaper 'Bild' that he was considering resigning in protest over the ECB's plans to intervene in the sovereign debt markets. Bundesbank boss Jens Weidmann was dissuaded by senior figures in the German government.

Mr Weidmann declined to comment on the report, which comes as the ECB prepares several plans to reduce bond yields. The plans will be given to central bank governors on Wednesday -- 24 hours vefore a crucial meeting.

Mr Weidmann, the only ECB council member opposed to ECB president Mario Draghi's plan to buy bonds in some shape or form, has decided to remain in his post to defend his position at next week's policy meeting, 'Bild' reported.

The second resignation of a Bundesbank boss in as many years would send shockwaves through the markets and make it much more difficult for Chancellor Angela Merkel to soften her stance towards bailouts for countries such as Ireland.

Bailouts

Her room for manoeuvre ahead of next year's general election is already shrinking as the German economy rapidly slows down. The Bundesbank has repeatedly made clear that it has deep misgivings about the ECB's determination to press ahead with such a scheme.

Mr Weidmann's predecessor as Bundesbank chief, Axel Weber, quit last year in protest at the ECB's previous, now-dormant bond-buy plan. Juergen Stark, a former ECB chief economist, followed him out of the door.

Earlier this week, Mr Weidmann told 'Der Spiegel' magazine that bond-buying can become "addictive", like a drug.

He added: "I hardly believe that I am the only one to get stomachache over this."

Irish Independent

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