The Italian ECB chief’s first tactic was to chop the decision into separate questions, a strategy he thought most likely to construct as broad a consensus as possible for QE.
He first sought agreement on the principle that buying sovereign bonds of all euro zone member states in the secondary market in proportion to their share in the central bank’s capital was a legitimate tool of monetary policy.
This not only built a vital foundation, but also neutralized official German opposition.
“For me, the most important thing was we all agreed it was legal – including the Germans on the council,” one participant said.
Having secured unanimous support for the principle, debate could then move to the timing and modalities of bond-buying, notably how much risk was shared among national central banks.
Here, crucially, Draghi offered a compromise — one that some central bankers and analysts have said could weaken not just the impact of QE but also the bank’s credibility.
He suggested that only liability for jointly issued EU and European Investment Bank bonds be mutualised, and that the default risk on the other 80 percent of government debt to be bought should fall on national central banks.
“Draghi argued that while many of us want to see a European fiscal and political union with mutualised debt issuance, this requires a political decision, and unelected central bankers should not do this through the back door,” one participant said.
This most disputed aspect of the decision — to ring-fence most of the risk — was a concession to German Chancellor Angela Merkel and the Bundesbank “designed to allay German hysteria”, said another source. The source added that it was of little practical relevance since risks would inevitably be shared among Euro system central banks if a euro zone country defaulted.
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