In May the European Central Bank may announce whether it will employ unconventional monetary policy measures. Throughout March speculation built that the ECB would unveil a plan to buy sovereign and even private debt in the secondary market, especially after ECB president Jean-Claude Trichet failed to deny such rumours. As it was, in addition to disappointing the market with just a 25 basis point cut in the key ECB rate to 1.25% in April, Trichet stated that any decision to deploy new non-standard monetary policy tools would be deferred until May.
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 could be dodged by limiting purchases to corporate debt. But the 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%
