First, the scale of Government borrowing was maintained at a high level and surpluses on revenue account have given way to deficits. Second, such borrowing has been at less than market rates. Third, even the growing captive investors in Government securities such as commercial banks were not willing to subscribe beyond their statutory obligations.
The ECB has responded to these challenges by cutting its policy rate further in September and introducing a new stimulus plan2 involving the purchase of investment-grade asset backed securities issued by the non-financial private sector as well as covered bonds of the financial sector.