ECB looking at risk-sharing mix for QE plan: sources

Fri Jan 9, 2015 9:11am EST
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By Eva Taylor and Paul Taylor

FRANKFURT (Reuters) - The European Central Bank is considering a hybrid approach to government bond purchases which would combine the ECB buying debt with risk sharing across the euro zone and, in a nod to German qualms, separate purchases by national central banks.

Sources familiar with the discussions said such an option for bond-buying, also known as quantitative easing (QE), is among the tools the ECB is preparing ahead of its Jan. 22 policy meeting should it decide to act to address falling consumer prices and a growing risk of deflation in the euro zone.

Several QE plans are under discussion and nothing has been decided so far.

The debate reflects the ECB's efforts to build a robust programme that meets German concerns about how much risk it would take on, yet also pleases investors anticipating an unlimited money-printing pledge.

Markets and many economists believe anything short of an unlimited money-printing will fail to revive a moribund euro zone economy and undermine the unity of the currency area.

But Paul de Grauwe, an economist with the London School of Economics, warned that any move to leave the responsibility and risk of bond-buying with national central banks posed a grave threat to the euro zone.

"This would be a kind of step towards the disintegration of the euro zone," he said. "It creates the perception that it is not fully unified ... that this is not a monetary union."

The ECB Governing Council discussed the current situation at a dinner on Wednesday night as it gathered for a regular non-policy meeting. One central bank source said there was "clearly more of a consensus than before" that QE might be necessary.   Continued...

The famous euro sign landmark is photographed outside the former headquarters of the European Central Bank (ECB) in Frankfurt, late evening January 8, 2015.   REUTERS/Kai Pfaffenbach