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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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