Portugal repays bailout debt early as ECB expected to launch full-blown QE for eurozone

European Central Bank boss Mario Draghi is this afternoon expected to launch full-blown quantitative easing for the eurozone. It is a plan that has been discussed almost ad infinitum for the past few months – and one that some see as a way out of Europe’s economic doldrums, while others predict “little will change”.

According to a long report by the BBC this morning, “nobody seems to think it will fix all the eurozone’s problems. The best that eurozone QE might achieve is to alleviate one factor that could make them worse”.

Put more simply, Mario Draghi’s plan is like giving “painkillers to an economy that needs rather more radical structural treatment”, concludes the BBC’s Economics Editor Robert Preston.

For those still unaware of what QE is, it can be described as a way of buying up government debt using newly-created money.

It is fraught with variables, not least because with all the umming and ahhing that it has taken to launch QE, the eurozone has now entered deflation: the point where experts explain “prices fall so far that they strangle economic growth”.

Thus the jury is very much out as to whether this “medicine”, as the BBC report calls it, will be strong enough.

Meantime, the Portuguese government has announced that it wants to follow in the steps of Ireland and start paying back its bailout dues ahead of time.

Finance Minister Maria Luís Albuquerque told parliament yesterday that the first plan is to repay the IMF, whose loan to Portugal under the terms of the €79 billion bailout came to €26 billion.

“The government isn’t going to pay this money back in two or three months,” she explained. “But according to the measure to which we can finance ourselves (by selling debt) on the markets.”

It is a way of reducing the crippling interest payments facing Portugal, which increase over time, at a moment when interest rates are conveniently at rock bottom.

By NATASHA DONN [email protected]