This was the question the ECB had to answer about Estonia when it instituted its Public Sector Purchase Programme with the added stipulation that bonds would be bought proportionally to each member state’s share in the ECB’s capital key.
The accusation by Professor Friedrich Heinemann of the ZEW institute that the ECB’s public sector purchase programme is deviating from the eurosystem’s capital key to the benefit of Southern European states must have hurt, because a week after Mario Draghi’s press conference the ECB communications office saw fit to bring up the issue again in a longish twitter thread:
The ECB is expected to discuss this Thursday the future of its asset purchase programmes beyond the end of 2017. But exiting QE is no easy matter. The Fed’s policy normalisation plan has been three years in the making, with an update only last June, but the plan hasn’t been executed yet. The reason is the concern about the market impact of stopping or unwinding asset purchases. Just like bond yields have collapsed to negative values as a result of QE, they could rise uncontrollably when QE ends. And, in the case of the eurozone, the borrowing costs of peripheral member states might shoot up like they did at the height of the government debt crisis five years ago. I argue that a graceful exit from QE would be possible if central banks chose to act as market-makers, but they won’t for ideological reasons, and that the ECB actually can’t, for legal reasons.