ECB looking at 3 different paths to sovereign QE

This news is from earlier but we didn’t have a chance to post it.

Dutch newspaper Het Financieele Dagblad reports that the ECB his mulling three different options for sovereign QE.

#1: The ECB buys bonds in a quantity “proportionate to the given member state’s shareholding in the central bank.” Shareholdings also include EU, non-eurozone countries like Poland, which I assume are excluded. This roughly corresponds with GDP.

#2: Similar to #1 except the national central banks do the buying instead of the ECB. The downside is that it sounds more corruptible and more difficult bureaucratically. The upside is that all the risk, at least in principle, would remain with the local central bank.

#3: The ECB buys only triple-A rated government bonds. Only Germany and Luxembourg have top ratings from all three major ratings agencies but that expands to Finland, Holland and Austria as well if you include 2 out of 3 agencies. Still, it would be a political nightmare.

Overall, #2 sounds the most likely and would be the easiest way to avoid controversy. Although you run the risk of more problems down the line.

The other takeaway is that this sounds like the ECB is still at the drawing board and with most expecting an announcement on Jan 22, there is much (maybe too much) work to be done.