Tomorrow the two days of the ECB Governing Council will kick off in Cyprus which will give the definitive green light to Quantitative easing, the maxi plan for the purchase of public and private securities by the Eurotower. The operation will start on Friday 6 or Monday 9 March and will concern bonds from two to 30 years on the secondary market, where the securities already in circulation are exchanged.
How much is QE worth and how long does it last?
Qe will inject resources into the system of at least 1.140 billion euros (about 12% of European GDP), equal to 60 billion a month (of which 43 in government bonds) between now and September 2016, even if the deadline may be postponed. However, there is a limit: purchases cannot exceed 33% of the securities of each individual issuer.
WHAT ARE THE GOALS?
The fundamental objective is to give a boost to inflation to restart the engine of the economy. The official target Frankfurt is aiming for is a price growth rate "less than but close to 2% per year": a rather distant goal, considering that in February the currency area recorded an average deflation of 0,3%.
Furthermore, the liquidity injection should free up funds on banks' balance sheets, which institutions could use to jump-start credit. The creation of money, then, will further weaken the euro, benefiting exports, but penalizing imports. Finally, the increase in demand for bonds should lead to a reduction in their cost.
HOW DO YOU DECIDE WHICH GOVERNMENT BONDS TO BUY?
The Central Bank Council, which announced Qe last 22 January, still has to specify when and how the concertation of the purchases will take place, which in any case will be divided in proportion to the shares held by the various central national institutes in the capital of the ECB.
HOW MANY ITALIAN GOVERNMENT BONDS WILL BE PURCHASED?
As far as Italy is concerned, our country's share in the capital of the ECB is 17,5%, which corresponds to total purchases of 140,3 billion, or 7,4 billion a month.
HOW IS THE RISK SHARED?
The Eurotower will bear only any losses associated with 20% of total purchases (of which 12% in national securities and 8% in bonds issued by the EIB, ESM and other transnational institutions). For the remaining 80% of the bonds purchased, on the other hand, no risk sharing is envisaged: the individual national central banks will have to register their respective (and eventual) liabilities.
