Bernard Durkan (Kildare North, Fine Gael)
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399. To ask the Minister for Finance the extent to which Eurozone countries are likely to be affected by indications to increase interest rates; and if he will make a statement on the matter. [32081/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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There has been an extraordinary level of monetary support over the course of the pandemic. This support has included low interest rates, extensive asset purchases, and various refinancing operations, all of which have led to favourable financing conditions. This in turn has supported bank lending to firms and households, and has made it easier for people and companies to borrow funds. It has also lowered the burden of debt for eurozone countries, facilitating the substantial fiscal support governments have provided to cushion the impact of the pandemic.

As the economy recovers and economic conditions begin to normalise, the exceptional monetary policy supports in place will need to be gradually withdrawn. However, a sudden and premature tightening of monetary policy could have adverse effects, threatening financial stability, increasing debt service costs and leading to a weaker-than-anticipated recovery. This possibility was one of the key downside risks set out in the Stability Programme Update published by my Department in April.

However, the ECB’s position is that the highly accommodative monetary policy continues to be necessary to support the burgeoning economic recovery. The ECB has also made it clear that advanced notice and clear communication of the path ahead will precede any tightening of monetary policy. This will help to avoid negative reactions from the market when monetary policy begins to normalise.