Exclusive: ECB mulls buying debt of cities and regions - sources

Wed Nov 11, 2015 11:02am EST
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By John O'Donnell

FRANKFURT (Reuters) - The European Central Bank is examining whether to buy municipal bonds of cities such as Paris or regions like Bavaria, according to people with knowledge of a possible extension of its one-trillion-euro-plus money printing scheme.

This regional bond buying could be one in a series of measures to be rolled out in the coming months, although one of the sources said time was short for a full launch in December and that this would likely come by March next year.

The ECB declined to comment.

Despite the ECB's scheme of quantitative easing (QE) to buy chiefly state bonds, the euro zone's economy is growing only modestly and the central bank is urgently considering what more it can do to improve it and stagnant price inflation.

As part of preparations for the next rate-setting meeting of policy-setters on Dec. 3, ECB officials are now analyzing whether and how to extend its shopping list to municipal bonds, issued by, say, Madrid or Mainz, or a federal German state.

"You have big markets, such as Spain and Italy. France has a well developed market," said one person.

According to data from Thomson Reuters IFR, almost $500 billion of bonds issued by European cities and regions are in circulation. The regions have sold more than $76 billion of bonds over the last year.

The city of Paris, for example, has borrowed 4 billion euros ($4.3 billion) in total through such bonds. It recently sold a bond of 300 million euros.   Continued...

The European Central Bank (ECB) headquarters are pictured in Frankfurt, Germany, September 3, 2015. REUTERS/Ralph Orlowski