Thinking about these two things in conjunction raises an interesting question for the ECB: if a tail event comes rearing its ugly head and the global central bank race to the bottom accelerates, will Mario Draghi, effectively fighting with one hand tied behind his back by virtue of Q€’s limitations, be able to fend off an outright collapse?
Here’s FT with more:
Except for Greek debt, the 25 per cent and 33 per cent caps should not prove binding in a scenario where the ECB keeps its monthly asset purchase pace of €60bn
.However, the limits could be reached in worst-case scenarios where the ECB would have to boost the size of its QE programme or implement OMTs targeted on specific sovereigns.
The first type of worst-case scenario would be a new global deflationary shock. It might be triggered by faltering US growth or a sharper-than-expected slowdown in China. The consequence would be fiercer currency wars with balance sheet expansion races among central banks.
In this competition, the ECB would be handicapped: it would not have much room to significantly increase the size of its bond purchase
programme. For instance, if monthly purchases had to be raised to €100bn, the 25 per cent issue limit would be reached after only eight months in the case of German government debt.
Given the narrow size of the
eurozone corporate bond market, any substantial further expansion of the asset purchase programme would then have to include equities. But this could prove controversial within the ECB governing council.
- Source, Zero Hedge, read more here