Pearse Doherty (Donegal, Sinn Fein)
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231. To ask the Minister for Finance the projections or forecasts his Department has made with regard to the impact of winding down of quantitative easing by the ECB; and if he will make a statement on the matter. [46488/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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The European Central Bank (ECB) announced on October 26th the extension of its QE programme from December 2017 until September 2018 at the earliest, while at the same time announcing a reduction in the rate of monthly purchases from January 2018 to €30 billion, from €60 billion at present. The reinvestment of principal payments on maturing securities purchased under the programme will continue for "an extended period of time" after the end of net asset purchases, meaning the ECB will remain in the secondary sovereign bond market beyond September 2018.

Economic evidence generally points to QE as having had positive effects on the European economy, contributing to lowering sovereign debt yields and providing a small boost to bank lending, investment, real GDP, headline inflation, and medium-term inflationary expectations. The Irish economy has benefitted in particular via a reduction in sovereign borrowing costs, additional liquidity in the banking sector, and an improvement in economic activity in key export markets. The extension of the programme to September 2018 is expected to continue to contribute to these effects, supporting overall economic growth and inflationary expectations.

In my view, the ECB's decision to downsize the scale of its QE purchases, whilst also leaving open the possibility of an extension beyond the new end date, is a measured response that balances favourable short-run economic data flow and a generally positive outlook, against possible market disruption that may occur in the event of an abrupt wind-down. Downsizing is based on a view that the euro area economy no longer needs the same level of monetary stimulus, a view that is supported by recent outturns in the euro area which showed a solid growth rate of 0.6 percent quarter-on-quarter in Q3 2017, or 2.5 percent year-on-year. As such, any negative impacts of winding down are expected to be limited. My Department will continue to monitor developments, including with respect to growth and inflation in the euro area, and advise accordingly.

The extraordinarily accommodative monetary policy adopted by the ECB, and the associated decline in sovereign borrowing costs, clearly cannot last indefinitely. This heightens the need to implement prudent fiscal policies to keep sovereign borrowing costs low. In this regard, I would point out that while our debt-to-GDP ratio will continue falling in the coming years (on the basis of my Department's forecasts), this is solely due to rising GDP; in purely money terms, we will continue to increase public debt next year and in 2019. In these circumstances, it is crucial that prudent budgetary policies are implemented in order to minimise debt interest payments.