Draghi's Dilemma

In Europe, a Seller's Market

Weidmann Draghi ECB Bundesbank Source xx 41845561
Different views: Jens Weidmann, president of the German central bank seen left, and Mario Draghi, his counterpart at the European Central Bank.
  • Why it matters

    Why it matters

    The lack of willing partners in banks could doom the ECB’s bond-buying program before it even begins.

  • Facts

    Facts

    • The ECB has said it will launch a €1.14 trillion bond buying program in March, buying €60 billion each month until September 2016.
    • About one fifth of outstanding bonds in the euro zone are held by banks that are loath to sell. Another third held by insurers and pension funds that are equally skeptical.
    • Banks in Europe are required to hold safe assets against their riskier lending, making many of them unwilling to part with government bonds that are counted as safe by regulators.
  • Audio

    Audio

  • Pdf

 

It’s a simple principle of finance: To be a buyer, you need a willing seller.

The European Central Bank in March will become a buyer in a big way. Its president, Mario Draghi, in January announced the ECB will next month start buying €60 billion per month in government bonds and other assets from investors. It plans to continue the program, known as quantitative easing, until at least September 2016 – a total of €1.14 trillion.

The announcement heralded a revolution in European monetary policy – a last-gasp effort by the ECB to prevent Europe from plunging into a dangerous deflationary spiral and to speed up its economic recovery.

But for the ECB’s bond-buying program – known as quantitative easing – to work, it needs willing sellers.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.