Blog Post

The ECB has fired its bazooka

The ECB announced today an expansion of its asset purchases, to include securities issued by European agencies and institutions, as well as central government in the euro area.

By: and Date: January 23, 2015 Topic: European Macroeconomics & Governance

The ECB announced today an expansion of its asset purchases, to include securities issued by European agencies and institutions, as well as central government in the euro area. Purchases are intended to be continued until at least September 2016 and in any case until the Governing Council sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term. This is a positive feature of the announcement, as it leaves the operation open ended enough. 

The combined target monthly asset purchases will amount to 60 billion euro. However, this will also include the purchases already envisioned under the ABSPP and CBPP. There are no weekly targets for purchases under these two programmes, but the ECB had bought about 35bn combined as of 16 January. The CB purchases began in October and ABS purchases in November 2014, meaning the ECB bought on average around 10 billion a month. Assuming a similar pace in the future, the additional purchases would be around 50 billion (and not 60) per month, leading to a total of 900/950 billion under the scenario in which the programme were to be stopped in September 2016. This is still positively above the 500-700 billion range that had been rumoured ahead of the meeting.The maturity spectrum will also be very large, as eligible securities will range form a minimum remaining maturity of 2 years to a maximum remaining maturity of 30 years at the time of purchase.

The purchases will be pari passu with private investors, which will be achieved by imposing a 33% issuer limit and a 25% issue limit (the latter needed to help avoid that the ECB achieves a blocking stake under Collective Action Clauses (CACs)).

The most interesting point is the risk sharing arrangement of the ECB programme

The most interesting point, as largely expected, is the risk sharing arrangement of the programme. Purchases of securities of European institutions (which will account for 12% of the additional asset purchases, and which will be purchased by NCBs) will be subject to loss sharing. This is consistent with the idea that these securities are at present the closest resemblant to an Euro/EU-wide bond, as we first pointed out in May. On top of this, the ECB will hold 8% of the additional asset purchases, meaning that a total 20% of the purchases will be subject to loss sharing. The rest of the NCBs’ additional asset purchases will however not be subject to loss sharing at all. This effectively means that 80% of the risk is borne by the NCBs, and fragmented along national borders. However, if we consider only the purchases of non-EU-wide securities (i.e. if we exclude that 12% of the purchases that are likely to be safest), then only 9% of the national sovereign risk will be shared.

  • Overall, the large majority of the governing council came to the correct assessment that inflation expectations are getting disanchored and that therefore monetary policy action was needed. 
  • The programme is large. This increases its effectiveness and will have a powerful impact especially through the exchange rate channel and the portfolio rebalancing channel
  • Some Northern governing council members were concerned that such a large programme would mean that the ECB takes on board a too significant fiscal risk. The ECB therefore reduced risk sharing substantially. This may reduce the effectiveness of the programme.
  • Before this decision, nobody could have questioned whether monetary policy is "single". Now, investors can rightly ask that question. Mario Draghi addressed this several times in his comments but his answers were not convincing. This question will be an important issue in the coming months and potentially years.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article
 

Blog Post

Will European Union recovery spending be enough to fill digital investment gaps?

The recovery facility will boost digital transformation, but questions remain whether it will be sufficient to achieve Europe’s digital ambitions.

By: Zsolt Darvas, J. Scott Marcus and Alkiviadis Tzaras Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: July 20, 2021
Read about event More on this topic
 

Upcoming Event

Sep
1
12:30

The EU recovery fund - state of play and outlook

Bruegel Annual Meetings, Day 1- In this session we will discuss the EU recovery fund, its state of play and outlook.

Speakers: Nadia Calviño, Karolina Ekholm and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic
 

Upcoming Event

Sep
2
10:00

Conversation on the recovery programmes

Bruegel Annual Meetings, Day 2- In this session, we discuss the recovery programmes.

Speakers: Maria Demertzis, Henry Foy and Tadeusz Kościński Topic: European Macroeconomics & Governance Location: Palais des Academies, Rue Ducale 1
Read about event
 

Upcoming Event

Sep
2
13:00

European banks: under global competitive pressure?

Bruegel Annual Meetings, Day 2 - European banks have lost stature and remain generally low-profitability, low-valuation in comparison to their global peers. Is that a problem? If so, what can EU policymakers do to address it?

Speakers: José Antonio Álvarez Álvarez, Mairead McGuinness and Nicolas Véron Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Palais des Academies, Rue Ducale 1
Read about event More on this topic
 

Upcoming Event

Sep
2
15:45

Blending physical and virtual: shaping the new workplace

Bruegel Annual Meetings, Day 2 - This panel will cover the changes the COVID-19 pandemic made to our workplaces, and what to expect in the near future.

Speakers: Nicholas Bloom, Michael Froman, Mario Mariniello, Sara Matthieu and Luca Visentini Topic: European Macroeconomics & Governance Location: Academy Palace
Read about event More on this topic
 

Upcoming Event

Sep
3
09:00

The role of the EU's trade strategy for an inclusive and sustainable recovery

Bruegel Annual Meetings, Day 3 - We are delighted to welcome Valdis Dombrovskis, Executive Vice President of the European Commission for An Economy that Works for People to talk about Europe's trade strategy.

Speakers: Valdis Dombrovskis, Alicia García-Herrero and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Palais des Academies, Rue Ducale 1
Read about event More on this topic
 

Upcoming Event

Sep
3
10:15

Conference on the Future of Europe: envisioning EU citizens engagement

Bruegel Annual Meetings, Day 3 - Panellists will discuss different options and what they may entail while revisiting the debates on the future of Europe at national and EU-level that have been conducted thus far.

Speakers: Caroline de Gruyter, Kalypso Nicolaïdis, Niclas Poitiers and György Szapáry Topic: European Macroeconomics & Governance Location: Palais des Academies, Rue Ducale 1
Read article Download PDF
 

Policy Contribution

A new direction for the European Union’s half-hearted semiconductor strategy

The EU needs a more targeted strategy to increase its presence in this strategic and thriving sector, building on its existing strengths, while accommodating its relatively low domestic needs.

By: Niclas Poitiers and Pauline Weil Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: July 15, 2021
Read article More by this author
 

Blog Post

Fit for 55 marks Europe’s climate moment of truth

With Fit for 55, Europe is the global first mover in turning a long-term net-zero goal into real-world policies, marking the entry of climate policy into the daily life of all citizens and businesses.

By: Simone Tagliapietra Topic: Energy & Climate, European Macroeconomics & Governance Date: July 14, 2021
Read article More on this topic
 

Blog Post

Fair vaccine access is a goal Europe cannot afford to miss – July update

European countries must do more to tackle the vaccine uptake gap. Vaccination data should be published at the maximum granularity level so researchers and local decision-makers can monitor progress.

By: Lionel Guetta-Jeanrenaud and Mario Mariniello Topic: European Macroeconomics & Governance Date: July 14, 2021
Read article More by this author
 

Blog Post

SPACs in the gap

Special-purpose acquisition vehicles could fill a gap in European equity markets and lure risk-averse investors off the sidelines.

By: Rebecca Christie Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: July 13, 2021
Read article More on this topic
 

Blog Post

A breakdown of EU countries’ post-pandemic green spending plans

An analysis of European Union countries’ recovery plans shows widely differing green spending priorities.

By: Klaas Lenaerts and Simone Tagliapietra Topic: European Macroeconomics & Governance Date: July 8, 2021
Load more posts