Link: they did it.

The key points:

  1. No change to the benchmark interest rate (so no banks will be paying the ECB for the privilege of lodging funds with them).
  2. An unlimited bond repurchase program (of bonds of less than 3 years maturity).
  3. The Bundesbank was disgusted with it all, announcing post the event that the program is “tantamount to financing governments by printing bank notes”.

I’m not sure if we’re paying enough attention to the Germans. After all, they would know that financing governments by printing bank notes results in:

Which in real life looks like this:

Anyway, the new program, called “Outright Monetary Transactions*”, claims that it will “sterilise” the purchases so that the whole thing remains money supply neutral. Which is basically saying that if the ECB buys a bond back for $100 (releasing $100 from its investment state back into the economy), it will also remove $100 from circulation.

$100 ← bond repurchase ← ECB ← deposit auction $100

They will do this by auctioning off deposits (ie. encouraging people/banks to deposit money with the ECB). That has worked in the past. However – my question:

If the ECB starts to accumulate an even bigger balance sheet of bonds belonging to distressed countries, how willing would you be to invest your money with them?

And if the ECB insists that the eurozone central banks deposit money with them, then there is no such thing as “oh well we’ll just have to deposit the money then”.

What will happen is that people will start spending their money rather than depositing it. And then you get this and this.

Without the American buffer of being the global currency of reserve.

*And I am NOT kidding about the name.