ECB seeks middle ground in controversial buyback program – Financieele Dagblad (Registration)

ECB seeks middle ground in controversial buyback program – Financieele Dagblad (Registration)

The European Central Bank (ECB) breeds on an additional buy-back program of € 500 billion, focused on government bonds. With a restriction on the sharing of risks they hope to get enough support for the contested decision.

This appears from information leaked to various international media after the interim meeting last Wednesday. Include Bloomberg, Reuters and CNBC reported that there is talk of a buy-back program of € 500 billion. It is the first time that a material number comes out.

Greece

One of the proposals made by the ECB staff at the 25-makers (the six members of the ECB and the nineteen governors and governors of national central banks) is to buy only paper with a credit assessment of BBB – or higher. Thus Greek government bonds would temporarily fall out of the boat, making the ECB the time the outcome and consequences of the Greek elections await on January 25.

reportedly spoke last month seven or eight policymakers at the ECB against a buyout program of government bonds. The others have no objection or are just a big favor and take a decision by majority. Out details of which Reuters has, however, the ECB seems much to be located to meet opponents to announce the buyback program on January 22, with the widest possible support

Shared risks

For example, a large proportion of government bonds through the national central banks may be bought, and another part through central or on behalf of the ECB. In the first part the risks from a potential default of a country would remain with the central bank. At the second centrally purchased part (presumably somewhere between 20% and 40%), the risks be shared in case of a default.

The restriction on sharing risks repurchased bonds would be a gesture to President Jens Weidmann and the Bundesbank president Klaas Knot of DNB. They spoke out against rather a redistribution of potential risks between northern and southern Europe. Knot said in the Times that it comes close to the potential of a transfer of wealth, a decision that should be taken by democratically elected politicians to be and not by the central bank.

Deflation

The message is further understood that nothing is certain. There is talk of different volumes of the buy-back program, or it must be an open finite buyback program and should be purchased on the question of the assets. According to sources at the central banks were now more policy makers understand the need to intervene. In December, for the first time in five years, deflation in the euro zone, as shown by figures published Wednesday.

By the option to share the risks and limited to allow a large portion of the national central banks, was, according to a source ” no fundamental “resistance. “This could be an option where the Bundesbank could come in.” Nevertheless, stressed the source told Reuters that there is no agreement reached, and the debate is still open.