The ECB’s QE won’t be like a bazooka

money<p>Euro zone sovereign bond purchases to .launch this month</p>

Indeed, markets are taking a pleasant surprise into consideration. However, we are talking of just €500bn which will be spent on purchasing government bonds. This already represents a limitation on the plan that had been previously announced of expanding the ECB’s balance to €3Tr, the same size as it used to have in 2012, and that Draghi allowed to shrink by more than half, just when he calmed the markets by announcing his famous “whatever it takes” to save the euro (the central bank’s balance sheet fell because it started to sell LTROs, 3-year-loans that Trichet launched).


Back then, risk premiums began to fall, but at the same time deflation became a reality. Now the ECB is trying to go back to to positive inflation, and that is why great achievements are expected. (We must say that markets might settle with limited support, as long as their battered balance sheets get better). Deflation was looming as risk premiums were falling close to zero, and the ECB was satisfied: it’s a case study.


In any case, Munchau says that  the ECB’s QE “won’t be a Bazooka”. First, because it will probably be a fixed amount, with no assured continuity; then, Munchau has repeatedly said – I guess he has some reliable information – that every central bank will purchase its own country’s debt.


That is, of those €500bn the Bank of Spain will acquire a certain of Spanish debt… We do not know the allocation by countries, but if it is a proportional part to each country’s GDP, it does not seem like a lot of money: the Spanish GDP is 1/13 of the eurozone’s GDP. Would that amount be of €40bn, less than 4% of GDP? I’d be shocked.


Seen like that the ECB’s QE will surely not be a bazooka… Although one might think that this plan is nothing but a Trojan horse to mislead Germany, opening the door to endless debt purchasing, via national central banks, but with the ECB’s money.



About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://

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