ECB Weighing QE Through National Central Banks, Spiegel Reports

Angela Merkel and Mario Draghi
German Chancellor Angela Merkel and European Central Bank President Mario Draghi. Photographer: Ralph Orlowski/Getty Images

European Central Bank President Mario Draghi briefed German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble on quantitative-easing plans under which national central banks would buy bonds issued by their own country, Spiegel magazine reported.

The plan, which tries to avoid a transfer of risk between member states, envisages purchases in line with the ECB’s capital key with a limit of 20 percent to 25 percent of each country’s debt, Spiegel said in an article published yesterday, without saying where it got the information. Greece would be excluded from the program because its bonds don’t fulfill the necessary quality criteria, the magazine said.

An ECB spokesman declined to comment on the design of any QE program. A German government spokesman said earlier yesterday that Merkel and Draghi met on Jan. 14 for “regular informal talks,” while declining to comment on the topic.

Klaas Knot, governor of the Dutch central bank, told Spiegel that no “concrete proposal” has yet been made. The Governing Council will meet on Jan. 22 in Frankfurt to set monetary policy.

Officials presented various forms of quantitative easing to the council at a Jan. 7 meeting, and Draghi signaled in an interview with Die Zeit that the ECB is ready to take a decision as early as next week. Officials have courted the German public in a flurry of interviews, arguing that more stimulus is needed to fend off deflation in the 19-nation currency region.

Deflationary Spiral

Knot said in the Spiegel interview that he sees no sign households are postponing spending, which Draghi has pointed to as one indicator of deflation. Knot also signaled a preference for measures that limit risk-sharing.

“If each central bank was only buying debt of its own country, the danger of an unwanted redistribution of financial risk would be lower,” he said. “We have to avoid that decisions are taken through the back door of the ECB balance sheet that have to continue to be reserved for elected politicians in euro-area countries.”

By keeping the risk of government-bond purchases at the national level, the ECB would show that it is “exclusively concerned about monetary and not fiscal policy,” he was cited as saying. Even so, QE may “distort prices for some capital investment in a way that they are no long in line with economic fundamentals,” he said.

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