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ECB Uses 50% of Members’ National Debt as Stimulus Guideline

ECB Stimulus Uses Operational Ceiling of 50% of National Bonds

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The European Central Bank is conducting bond purchases with an informal limit of just under 50% of each country’s debt issuance, a level never previously revealed that hints at the scale of support it has been willing to provide during the crisis.

The overall bond-buying restriction is higher than the formal 33% limit applied to the ECB’s regular quantitative easing plan, known as the Asset Purchase Program, according to officials with knowledge of the matter. 

The ceiling for debt issued by international agencies based in the euro area is 60%, compared with a 50% maximum for the APP, said the officials, who declined to be identified discussing confidential market matters. Such levels guide bond-buying operations without amounting to any legal constraint to the ECB’s freedom of action. 

The numbers featured in a recent Governing Council presentation examining how much buying space the ECB still has, the officials said. That exercise was part of the buildup to crucial discussions in December when policy makers led by Christine Lagarde will determine the future of bond purchases. No decisions have been taken in that regard. 

An ECB spokesman declined to comment on the institution’s stimulus programs. 

“It’s interesting that they do have an operational ceiling to work toward, even if not legal,” said Imogen Bachra, rates strategist at NatWest Markets. “I just did some quick back of the envelope calculations though and it looks like they’re already above that limit in Germany, Netherlands and Finland, so perhaps it’s not a strict limit.”

When the ECB first started bond purchases in 2015, it set a limit on the share of any country’s debt it would buy to “safeguard market functioning and price formation as well as to mitigate the risk of the ECB becoming a dominant creditor of euro-area governments.” 

Officials also introduced rules dictating that the proportion of purchases to each nation should follow a calculation on the size of its economy.

Policy makers launched the Pandemic Emergency Purchase Program in March 2020. They said then that assets purchased as part of the pandemic response wouldn’t be subject to the prior issuance rules. 

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