Stimulus likely to help Ireland in several ways
Expected weakening of euro should boost Irish exports and tourism
British chancellor George Osborne, in Davos, welcomed the quantitative easing announcement but said it was not sufficient for a European recovery. Photograph: Chris Ratcliffe/Bloomberg
The stimulus package announced by the ECB should have several beneficial effects for Ireland, according to Government sources.
The expected weakening of the euro should boost Irish exports and tourism, whilst the cost of financing for banks should be reduced, leading to more lending.
The possible purchase by the Central Bank of another €16 billion of Irish government debt is not a concern given the strong performance of the economy.
“The growth dynamics [of the economy] outweigh the risks involved in the size of the Central Banks exposure to government debt,”explained the source.
The sources also pointed out that the Central Bank and ultimately the exchequer should make a profit on its holdings of Irish government debt as the interest payments would flow back to the State.
The officials, who had been involved in courting potential inward investors with the IDA, said it was not an issue of concern, “We have spoken to a lot of investors today. It is the growth story they are interested in. Ireland is a stand-out in terms of growth.”
Irish officials also anticipate a boost to economic confidence on foot of the ECB move.
Not sufficientGeorge Osborne
He said it should be accompanied by a clear plan to make the European continent more competitive, to back business in Europe, to create jobs, and to make sure public finances were in order.
“We have all those ingredients in the UK and that’s why our economic plan is delivering a strong economic recovery. We want to see those ingredients in place in the European continent so that the whole of Europe recovers.”
German chancellor Angela Merkel, who took to the stage at Davos while the announcement was made in Frankfurt, said the “world is amply supplied with liquidity right now”, and governments should seize the moment to reduce debt.
“This liquidity supply is such that you can’t really precisely see who is competitive or who isn’t quite there yet.”
Former US treasury secretary Larry Summers had earlier warned that euro zone quantitative easing would not be a “panacea”, and that it would be “less impactful” than the bond-buying programme launched by the US.
Outlining the differences between the quantitative easing programme under consideration by the ECB and the US bond-buying programme, Mr Summers saidthe US began its quantitative easing programme when long-term interest rates were in the 3 per cent range, not the 40 basis point range currently in place.
The US programme functioned well because it was unexpected rather than predicted, while the US programme worked through a capital markets channel, whereas a large part of lending in Europe takes place though banks.