Government bond purchases by central banks involve the fundamental risk of mutualising sovereign liability risks through the central banks’ balance sheets. While this risk can be safely ignored for countries with their own currency, it can be a major problem for a monetary union – especially for one which, like the European monetary union, is not a fiscal union.
At the end of the day, it could introduce common liability through the back door. And in this regard, it’s up to elected governments and parliaments to make such far-reaching decisions. In contrast to the OMT programme, the large-scale sovereign bond purchases currently being conducted take into account some of these concerns.