Some ECB Policy Makers Concerned Bond Plan to Test QE Limits

(Bloomberg) --

Some European Central Bank policy makers are unhappy that this week’s emergency bond-buying plan could require them to raise the limits on how much debt the institution can hold, according to people familiar with the matter.

While Governing Council members were unanimous that they needed to act to calm market turmoil as the coronavirus pandemic hits the economy, there were some reservations about the implications of the program, the people said. They asked not be named because the meeting was private.

An ECB spokesman declined to comment.

The qualms among some officials augurs further battles ahead, as the central bank said it stands ready to increase the size of its asset purchases if needed. That’s another potential test for President Christine Lagarde, who is facing a major crisis just months into the job.

The council eventually agreed to spend an additional 750 billion euros ($810 billion) on debt by the end of this year, and explicitly stated that it will consider revising its limits “to the extent necessary.”

The ECB restricts its holdings to a maximum of 33% of the sovereign bonds issued by any particular country. While some feel that cap is unnecessary in a crisis, increasing it could be a controversial move. Set at the start of quantitative easing in 2015, it’s meant to address concerns the central bank would breach European Union law by financing governments.

A key complication is that Germany’s top court is due to rule on the legality of QE in coming weeks.

The ECB has already spent more than 2.6 trillion euros on its original QE program, which was resumed last year, and will spend at least another 300 billion euros on that by December, in addition to the latest pandemic measures.

It also said the pandemic asset purchase program will be extended past the end of this year if officials judge that the crisis phase of the disease outbreak hasn’t passed.

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