AP ImagesIn this Nov. 3, 2011 file photo, activists of the Occupy Frankfurt movement have set up a fire near the Euro sculpture in front of the European Central Bank in Frankfurt, Germany.Bloomberg is reporting that the European Central Bank is drawing up its quantitative easing (QE) programme: they're planning a €500 billion programme of asset purchases.
That means buying up financial products, including government bonds, from around the eurozone. The aim is to reduce the return on those assets so that investors move into others: stocks and corporate bonds.
Here's Bloomberg:
European Central Bank staff presented policy makers with models for buying as much as 500 billion euros ($591 billion) of investment-grade assets, according to a person who attended a meeting of the Governing Council.
Various quantitative-easing options focused on government bonds were shown to governors on Jan. 7 in Frankfurt, including buying only AAA-rated debt or bonds rated at least BBB-, the euro-area central bank official said. Governors took no decision on the design or implementation of any package after the presentation, according to the person and another official who attended the meeting. The people asked not to be identified because the talks were private.
A 500 billion-euro purchase program would take the ECB halfway toward its goal of boosting its balance sheet to avert a deflationary spiral in the euro area. The institution is also buying asset-backed securities and covered bonds, and government bond-buying would be part of fresh stimulus to be considered at the Governing Council's Jan. 22 meeting.
There's a second report from Reuters, with another scoop. The suggestion that the ECB is going to buy "investment grade" assets is a little bit concerning for Greece and Cyprus, where government debt is not investment grade.
The European Central Bank is considering a dual approach to government bond purchases which would involve both it buying debt and sharing the risk across the euro zone and, in a nod to German qualms, separate purchases by national central banks...
Another central bank source said one of the options that was discussed was one where the ECB would buy a certain share of the total program and in case of default the risk would be shared among national central banks depending on their capital share.
The remaining part of the program's volume would be bought by national central banks, but at their own risk.
This could square that problem for Greece. National central banks don't have very much power any more, but if they were allowed to buy government bonds it might calm fears from some countries about collective-risk taking that they don't want. The national institutions would then be carrying the risk.