End of ECB Quantitative Easing Program: What's Next?

Forex News

Confident that the economy is in decent shape and inflation is picking up, the ECB appears set to end its 2.6 trillion euros (£2.3 trillion) asset purchase scheme in December. ECB policymakers still have to finalize how and where to reinvest the proceeds of bonds that mature from January.

European Central Bank is leaning towards minimal changes to how cash is spent in the final act of the stimulus program as the Bank tries to keep edgy bond investors on side. The bank would open itself to criticism if it decided to invest in longer durations in some countries with a high debt stock such as Italy, but not others.

The first issue to address is a transition to a new capital key, a calculation of how much capital each European Union country has paid into the ECB that serves as the basis for allocating bond purchases among different countries. This is scheduled to be recalculated this year to reflect changes in the relative size of the countries' economies and populations. Among large Eurozone countries, this should increase Germany's already dominant share and shrink Italy's.

Another issue still to be addressed is whether the ECB could slow down the ageing of its bond portfolio by purchasing more long-dated paper as its existing holdings mature.