“Let’s not get too far ahead of ourselves,” warned an uncited ECB rate-setting source. Reuters reports the European Central Bank may discuss technical changes to its asset-buying scheme next week but a decision could be deferred until December when the bank will also decide whether to extend the scheme beyond March.
The reaction – disappointment…
The ECB declined to comment. The sources added that no decision has been made and board proposals have yet to be distributed.
“Abandoning the capital key completely would be very difficult. That would be a PR disaster in Germany and it would suggest we want to help indebted countries more,” a governing council member said.
“But we’re already deviating from the capital key so the question is just how much deviation is too much before you change the nature of the program. I think we have room left.”
The ECB does not at present buy Greek and Cypriot bonds because they lack an investment grade credit rating, and it does not buy corporate debt according to a capital key.
Compromise proposals could include relaxing, on a temporary and partial basis, a rule forcing the ECB to buy debt in proportion to the size of each euro zone economy, the sources familiar with the discussion added.
That could potentially reduce the ECB’s purchase of German debt, risking renewed conflict with Berlin, which has already argued that the ECB is subsidizing indebted countries.
Other proposals may include buying a limited amount of bonds yielding less than the deposit rate, which the ECB currently rules out, and buying a bigger share of any individual bond issue, the sources added.
The ECB is looking for ways to ensure it can continue buying 80 billion euros worth of bonds every month even if it decides to extend the program beyond its current end-date in March. The asset purchase scheme was launched in March 2015 as part of efforts to revive growth and inflation in the euro zone.
But because technical changes will depend to a great degree on whether the scheme is extended, many policymakers advocate combining the two decisions, probably in December, the sources told Reuters.
We’re gonna need more “whatever it takes” Mr.Draghi!!