Access to ECB bond-buying not affected by lack of credit line, says Noonan

Ireland's decision to exit the IMF-EU rescue programme without the help of a precautionary credit line does not affect its ability to access the European Central Bank's bond-buying programme, Minister for Finance Michael Noonan indicated yesterday.

“Not having a precautionary programme doesn’t give us any advantage about OMT [the Outright Monetary Transactions programme] in the future, but it doesn’t give us any disadvantage either if there’s a systemic risk across the euro zone,” Mr Noonan said ahead of a meeting of euro zone finance ministers in Brussels.

While the ECB last year announced details of its OMT programme – a procedure that would allow the ECB to buy bonds of troubled countries on the secondary market – the procedure has not been used. According to the ECB, a necessary condition is “strict and effective conditionality” attached to an ESM programme or precautionary programme.

Draghi
Earlier this week, the Minister for Finance told the Dáil he had discussed the issue with ECB president Mario Draghi last month.

"I had a long conversation with Mario Draghi and his two deputy presidents in Frankfurt. OMT is not a policy for intervening in individual countries that are in difficulty. If Ireland had a problem, OMT would not be the solution."

Having a credit line, he added, “does not of itself guarantee access to OMT, and it is a necessary but not sufficient condition. In that respect, in the absence of systemic risk, the position of Ireland is not fundamentally changed by the Government’s decision last week not to seek a precautionary credit line.”

Speaking last weekend, the head of the National Treasury Management Agency, John Corrigan, said that Ireland "would still be in line to benefit" from the OMT programme, though he stressed that the precise details of OMT had yet to be worked out.

Mr Noonan said he welcomed the Irish Fiscal Advisory Council report, which warned that further capital injections into AIB, Bank of Ireland and Permanent TSB might be unavoidable. "They're there to provide independent advice to the Government. Nobody wants the country to go down the primrose path that it was led down by Fianna Fáil and the Greens where there was no contrary voice shouting stop . . . Overall their report shows that the fiscal council approves of the general thrust of Government policy."

Market reaction
Market reaction to Ireland's decision to make a "clean exit" from the bailout programme had been positive, the Minister noted, with yields still at about 3.5 per cent.

Both AIB and Permanent TSB had successfully raised private money in the markets this week, he added, noting that both institutions are in effect “surrogates for the State when they enter the markets”.

Yesterday’s extraordinary euro group meeting was convened to sign off on the 2014 budgets of euro zone member states, a procedure that came into effect this year following the introduction of “two-pack” rules. The budgets of programme countries are assessed separately through the troika mission process .

In its verdicts on the budgets announced last week, the European Commission warned that Spain and Italy were in danger of breaching commission targets.

Speaking on his way into the meeting, Spanish finance minister Luis de Guindos said the difference between Spain’s expectation of 0.7 per cent growth next year and the commission’s projection of 0.5 per cent growth was small.