… by pushing the capital key rules to the limit, the ECB may eventually face the same problem it was trying to fix in the first place. Kraemer says the bank could reduce purchases in Germany by 60 percent to make room for more bonds from countries where debt is still plentiful. But by the end of next year, the ECB would be facing the 33 percent limit not in one, but in four countries: Germany, France, Italy and Spain.
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“It appears that the ECB’s lone viable option is to accept the legal limits and gradually scale back the purchases next year,” says Kraemer. “In a first step, it could reduce the monthly purchases to 40 billion from 60 billion euros at the start of 2018 and step back further at midyear. But by the end of 2018, the purchases are likely to be history.”