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Europe’s Secret Bailout

MUNICH – While the world worries about Donald Trump, Brexit, and the flow of refugees from Syria and other war-torn countries, the European Central Bank continues to work persistently and below the public radar on its debt-restructuring plan – also known as quantitative easing (QE) – to ease the burden on over-indebted eurozone countries.

Under the ECB’s QE program, which started in March 2015 (and will likely be extended beyond its scheduled end in March 2017), eurozone members’ central banks buy private market securities for €1.74 trillion ($1.84 trillion), with more than €1.4 trillion to be used to purchase their own countries’ government debt.

The QE program seems to be symmetrical, because each central bank repurchases its own government debt in proportion to the size of the country. But it does not have a symmetrical effect, because government debt from southern European countries, where the debt binges and current-account deficits of the past occurred, are mostly repurchased abroad.

For example, the Banco de España repurchases Spanish government bonds from all over the world, thereby deleveraging the country vis-à-vis private creditors. To this end, it asks other eurozone members’ central banks, particularly the German Bundesbank and, in some cases, the Dutch central bank, to credit the payment orders to the German and Dutch bond sellers. Frequently, if the sellers of Spanish government bonds are outside the eurozone, it will ask the ECB to credit the payment orders.