After Europe experienced what is referred to as the “sovereign debt crisis” nearly a decade ago, the ECB introduced a series of programmes to alleviate financial pressures on certain European countries. These countries had been facing an inability to either repay their respective maturing government bonds or to refinance their troubled finance sectors. The programmes culminated in the ECB’s asset purchase programme (APP) which began in early 2015.
The last expansion of its APP was implemented in March 2016 when it expanded its asset purchase programme from €60 billion per month to €80 billion per month. At the same time ,the ECB cut its official rate to -0.40% from -0.30%. However, by October 2017, the ECB began to lay the groundwork for an end to the APP. It reduced the value of bonds to be purchased each month from €60 billion to €30 billion, with an aim to end the APP in September 2018.
The ECB has now announced it will reduce its monthly purchases to €15 billion in October and then end its APP totally in December. It will, however, continue to reinvest the proceeds of maturing bonds “for an extended period of time”. This means the ECB’s balance sheet will be maintained and the expansion of the Eurozone’s monetary base will not be reversed, unlike the contraction which is currently underway in the US.