Exclusive: ECB considers making weaker euro zone states bear more quantitative easing risk - sources

Fri Dec 19, 2014 7:08am EST
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By John O'Donnell and Paul Carrel

FRANKFURT (Reuters) - European Central Bank officials are considering ways to ensure weak countries that stand to gain most from a fresh round of money printing bear more of the risk and cost.

Officials, who spoke on condition of anonymity, have told Reuters that the ECB could require central banks in countries such as Greece or Portugal to set aside extra money or provisions to cover potential losses from any bond-buying, reflecting the riskiness of their bonds.

Such a move could help persuade a reluctant Germany to back plans to buy state bonds.

There is currently a stand off between the ECB and Germany's Bundesbank over ECB preparations to buy sovereign bonds, so-called quantitative easing (QE), to shore up the flagging euro zone economy.

But while the idea may help overcome opposition in Germany, which is worried that fresh money printing could encourage reckless spending and leave it to pick up the tab, critics will argue that any such conditions curtail its scope and impact.

Although a release of new money to buy state bonds appears all but certain, how it will happen remains fluid. The ECB's Governing Council holds its next monetary policy meeting on Jan. 22., with market expectations high for fresh stimulus.

Requiring weaker countries to set aside extra provisions would signal that more of the risk of potential losses would rest with national central banks, rather than the ECB in Frankfurt.

"Losses are taken ... by the nation states," said one official.   Continued...

Birds fly past the new ECB headquarters in Frankfurt December 4, 2014.    REUTERS/Kai Pfaffenbach