“NCB risk bearing should be traded-off against a big QE”

– Question: Analysts are talking of a total of €500-700 billion sovereign bond purchases, €50-70 billion per month until the end of 2016. Is that large enough?

Answer: I believe that an announcement in this range would be disappointing, especially because as you say below, makes know that the firepower of the ABS programme is limited.

– By making national central banks to take on the losses for their national debt, is the ECB bending to Germany’s interests?

I believe that indeed the national risk bearing could be a way to make QE more acceptable by Germany. In that case, I believe that the national risk sharing should be traded-off against a significant size, for the idea of national risk sharing to hinder QE effectiveness in the eyes of the markets.

– Some analysts are saying that NCB QE is actually likely to be more effective than ECB level QE. Do you agree?

Personally, I believe that national risk bearing is suboptimal because it gives a wrong signal i that it goes dangerously with the idea of national monetary policies. The only reason why I think it could be justified is if it is a necessary step in order to be able to launch a program with a significant size.

– There are market watchers who think the ECB will cut even more its main interest rate again this year. Do you agree?

I believe the ECB was very clear one of the last meetings that the current level of the refinancing rate can be considered the lowest bound.

– QE is priced into “core” bond yields in countries like France and Germany, but less so into periphery bond yields. Why does Spain have a risk premium of over 100 bp?

I think this could be because markets probably anticipated that any QE would include French and German bonds whereas it was less clear whether peripheral bonds would be bought, how much, and under what conditions.

– The Greeks are going to the polls on Sunday. What do you make of the Grexit debate? It’s just doomer’s noise or does it have any logical base in your view?

Based on pools reported in the press over the last weeks, most of the Greek respondents clearly stated that they want to stay in the euro and I believe that, regardless from whoever wins the elections, this will remain valid.

About the Author

Ana Fuentes
Columnist for El País and a contributor to SER (Sociedad Española de Radiodifusión), was the first editor-in-chief of The Corner. Currently based in Madrid, she has been a correspondent in New York, Beijing and Paris for several international media outlets such as Prisa Radio, Radio Netherlands or CNN en español. Ana holds a degree in Journalism from the Complutense University in Madrid and the Sorbonne University in Paris, and a Master's in Journalism from Spanish newspaper El País.

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