Dáil ambles as Draghi prepares bazooka
Political leaders would do well to keep one eye on shaky global economy
Whatever way you look at it, Mario Draghi’s latest bid to revive the lacklustre euro zone economy suggests the external situation is rather more feeble than speedy Irish growth and slow political talks might suggest.
An underweight ECB manoeuvre in December irritated markets, but the action on Thursday smacks of the fierce urgency of now. When it comes to the formation of the next government, it’s the fierce urgency of, well, later.
It’s easy to see why this might be so. Financial markets are far from alarmed at the Dáil stalemate. The National Treasury Management Agency sold short-term debt at a record low on Thursday, the yield going deeper into the negative zone at minus 0.22 per cent. The sale came as new data showed growth in 2015 reached 7.8 per cent, a level not seen since 2000.
It’s true also that market sentiment was buoyed by the anticipation of action in Frankfurt. In the event, Draghi delivered his most radical manoeuvre yet: the ECB cut all three of its interest rates; its €60 billion per month bond purchase programme was boosted by a third; it resolved to buy corporate debt; it settled on four new rounds of cheap loans for commercial banks; and it suggested that such banks might be paid to borrow from Frankfurt if they lend on money to households and firms.
Tracker mortgages will go down a little. The move might also bring political attention to the vexed question of variable loans in talks on the government. Morevor, Draghi’s suggestion that the ECB may have run its course with deposit rate cuts means he might have to extend bond-buying down the line. That would be to benefit of the heavily-indebted State.
This is full-throttle stuff from Draghi, the catalyst being the worsening outlook for euro zone growth. Amid anxiety over the fate of China and other emerging markets, worries now extend well beyond Europe. The ECB chief noted that the International Monetary Fund may move to cut its 2016 growth forecast for a second time. Stock market ructions since the start of the year have also led to tighter conditions in financial markets generally, he added.
Fearful of deflation, Draghi sees threats to price stability in all of this. After steep oil price cuts, inflation rates are expected to remain at negative levels in coming months before picking up later in the year. Frankfurt’s official inflation target - below but close to 2 per cent - still seems like a distant dream. ECB staff expect an annual euro zone inflation rate of 0.1 per cent for 2016.
It all serves to cast Ireland’s recent economic performance in sharp relief. Central Statistics Office data points to increased output in nearly all sectors, with domestic demand and exports rising at a healthy clip. In some ways, this is as reassuring a backdrop as might be imagined to the the deadlocked situation in Leinster House. That these figures reflect past performance is obvious.That past performance is no guarantee of future success is equally obvious.
True, forecasts still foresee decent growth in Ireland this year and next. However, Draghi’s intervention should prompt reflection in the political milieu. When the economies of Europe and the world go up, Ireland goes up. Yet the opposite is also true. We go down when they go down. And Draghi sees risk tilted to the downside in the euro zone.
Remember also that the “Brexit” referendum in June -15 weeks away - presents a multitude of threats and uncertainties in the Irish setting.
A century after the 1916 Rising, the ceremonial opening of the 32nd Dáil is not to be trivialised. As the real bargaining begins, however, political leaders would do well to take stock of shaky conditions the world outside. The situation is pressing, increasingly so. Yet Irish politics took time in recent days for an ambling detour into Dáil reform, a perennial argument that is not likely to have motivated a single voter two weeks ago. This is what politicians talk about when they are confounded by indecision on bigger questions.
At the very same moment, Draghi was rearming his bazooka for yet another euro zone campaign. Such moves are never undertaken gently, particularly in light of German aversion to daring adventures in monetary policy. Take note.