The European Central Bank (ECB) will introduce quantitative easing (QE) this week, but in a manner that shares risks among all eurozone nations, following concerns from Germany, the Financial Times reported yesterday.
The ECB is to hold its first policy meeting of the year on Thursday and is widely expected to announce some sort of program of sovereign bond purchases — or QE — to try to kick-start the eurozone’s sluggish economy.
German government officials, as well as central bank Deutsche Bundesbank President Jens Weidmann, have repeatedly voiced concern about such a program.
They believe it will take away the pressure on governments to push through essential, but painful, economic reforms, and taxpayers, particularly German ones, could end up footing the bill should another country be unable to repay its debt, the critics argue.
The Financial Times reported that, in a compromise move, “the most likely option at this stage [is] for the ECB to force the 19 national central banks that make up the eurozone stand behind their own sovereign bonds.”
German news magazine Der Spiegel reported on Friday that national central banks would only be allowed to buy the sovereign debt of their respective countries, to ensure they alone carried the risk of a possible default.
The weekly said that ECB president Mario Draghi had presented the scheme to German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble in a meeting on Wednesday.
Merkel’s office confirmed a meeting took place, but refused to reveal what was discussed.
The weekly, in a pre-released copy of a story to appear in today’s edition, said that under the revised scheme, the national central banks will only be allowed to buy the sovereign debt of their respective countries.
That means that each national central bank alone will carry the risk of a possible default by their government, and that Germany, Europe’s paymaster, will not have to bail out another country, the magazine said.
In addition, a ceiling of between 20 percent and 25 percent will be set on how much a central bank can buy of a government’s debt, Der Spiegel said, without revealing its sources.
Greece will not participate in the scheme, because its sovereign debt does not fulfil the necessary quality criteria, the report said.
The US dollar on Friday rose against the euro, but pared gains late in a session that was muddied by quarter-end trading, while riskier commodity-led currencies fell sharply after European inflation hit a record high and US consumer spending increased faster than expected. Although the dollar index was showing its biggest quarterly gain since the first quarter 2015, but was registered its first weekly decline in three weeks. Sterling rose against the dollar after falling earlier in the day. The pound last showed four straight sessions of gains followed by wild declines on concerns about Britain’s plan to slash taxes and pay
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