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14 Nov 2014

A silver bullet for the ECB: The European Quantitative Easing Intermediated Programme (EQUIP)

Carlo Bastasin / Lorenzo Bini Smaghi / Marcello Messori / Stefano Micossi / Franco Passacantando / Fabrizio Saccomanni / Gianni Toniolo

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This Commentary aims to contribute to the current analysis of sovereign QE (quantitative easing) that the ECB has already initiated through its internal working groups. The authors see a specific opportunity in sovereign QE that could provide for a game-changer in the course of the European crisis. They argue that the ECB intervention would be less distortive and more effective if it could leverage on the existence of a liquid market for a public security representing the eurozone as a whole, based on the securitisation of the different underlying national public securities. They therefore propose the creation of an asset-backed security (ABS) of the existing euro-area public securities composed according to the pre-defined key. Such a security would be a private initiative of financial intermediaries, under the condition that the ABS respects the pre-defined qualifications provided for by the ECB. The ECB itself could announce that it would consider such a security – mirroring the key of its sovereign bonds purchases in a fixed proportion that should be clearly announced at the beginning of the programme and would de facto create a basket of sovereign bonds – eligible in its purchase programmes both in the context of QE and outside of it, supporting a European quantitative-easing intermediated programme, or EQUIP.

The authors are Carlo Bastasin, Lorenzo Bini Smaghi, Marcello Messori, Stefano Micossi, Franco Passacantando, Fabrizio Saccomanni and Gianni Toniolo, all of whom are members of the Policy Group of the LUISS School of European Political Economy in Rome.