Hayes writes to Draghi to allow for more QE purchases of Irish debt
Ahead of the ECB’s Governing Council meeting today (Thursday), Brian Hayes MEP has written to ECB President Mario Draghi to seek to ease a restriction which allows the ECB to buy no more than 33 per cent of eligible bonds from a single state. This restriction may prohibit the ECB from buying more Irish debt in the remaining period of the Quantitative Easing programme.
“Given that the ECB’s Quantitative Easing programme will run until at least the end of this year, there is a risk that the ECB will be restricted from buying any more Irish debt as it is getting very close to the 33 per cent limit. Under the QE programme, the ECB has purchased almost €23 billion worth of Irish debt.
“In March this year, NTMA data showed that, in total, the ECB held €45 billion of the €121.6bn Irish Government bonds in issuance. However, this figure is skewed by the fact that due to the promissory note deal, these Anglo-Irish related bonds remain on the Central Bank’s balance sheet and are calculated as part of the ECB’s holding of Irish debt.
“The Irish Central Bank took €25 billion worth of long-term Anglo-Irish bonds onto its books in February 2013 as part of the promissory note deal. It has since sold off about €8 billion of the bonds but the outstanding amount is still over-inflating our exposure to the ECB.
“There needs to be some solution to this issue. There is a chance that we could get to October or November and the ECB would be completely restricted from buying Irish debt as part of the QE programme. We cannot be put at a disadvantage to other Eurozone countries – the QE programme was designed to purchase Member State bonds proportionally on the basis of economy size. This is the fundamental principle of the programme and must be guarded by the ECB.
“There are two potential options that the ECB could pursue. Either the issuer limit could be increased from 33% to 50% – this would give the ECB wriggle room not just for Ireland but also for Portugal and Germany whose bond purchases are close to the 33% limit. Or the ECB could factor the Anglo-Irish related bonds out of the 33% issuer limit. This would make sense given that this was a special ad-hoc arrangement between the government and the ECB in 2013 that was designed to curtail the risks from the Anglo-Irish bank collapse.
“Whatever the future of the QE programme beyond 2017, it must be ensured that the programme is wound up properly with all participant Eurozone countries fairly treated. If the ECB stops purchasing Irish bonds while the programme is ongoing, this could send a very negative signal to the markets.”