There does not seem to be any major technical hurdles to a moderate expansion of the bond purchase programme of the ECB. But the ECB’s claim that its QE programme is open-ended and can simply be continued until inflation picks up again is not credible. Monetary policy is no longer unified in the euro area since the national central banks within the eurosystem are buying different maturities of their own government bonds. Moreover, the unavoidable fiscal implications of a bond- buying programme will also play out at the national level, potentially leading to deep conflicts of interest within the eurosystem if the exit were to coincide with a resurgence of risk premia. The risks are thus increasing. But they are long term and intangible in nature.
This project was awarded under the Framework Service Contract for the provision of external expertise in the field of monetary and economic affairs (Monetary dialogues) (IP/A/ECONMD/FWC/2014-026/C6) with the European Parliament. The full list of CEPS’ Framework Contracts is available here.