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ECB poised to focus quantitative easing on corporate debt

The ECB could take an unprecedented step tomorrow – and start to buy private debt. But opinion is sharply divided as to whether such quantitative easing will work.

One of the market’s least-well-kept secrets is that the European Central Bank is readying a plan to buy private debt in the secondary market. After ECB president Jean-Claude Trichet failed to deny such a plan at the European Parliament economic committee on Monday, expectations are growing that the move could be announced as early as tomorrow, April 2. If the ECB does usher in quantitative easing it will be following in the footsteps of the UK, US, Switzerland and Japan, but would face political pressures that are unique to the eurozone.

One of the most obvious political problems it faces is that each individual country issues its own euro-denominated sovereign debt and at rates that infer credit differentiation; so which sovereign bonds should the ECB purchase? This problem is likely to be dodged, initially at least, by limiting purchases to corporates’ debt. But the relative size of corporate debt markets varies across the region as well, so countries with a large volume of outstanding corporate debt securities (such as France, with 41% of the euro area total) could lose out relative to those with smaller corporate debt markets (such as Spain, with 2.5%

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