What has the ECB been spending €60 billion a month on?

One of the questions that emerged during the four day IMMR training program concerned the use that the European Central Bank has been making of its ability to create €60 billion every month of new money.

With a bit of investigation, I think I have found out.

If you look at the ECB's website, you will find numbers for the total amount of newly created money that it has been injecting into the economy since they started the so-called Expanded Asset Purchase Program in January 2015. There are three components:

1. The third covered bond purchase programme (CBPP3) amounted to €17,586 million at the end of January 2016
2. The asset-backed securities purchase programme (ABSPP) stood at €150,337 million
3. The public sector purchase programme (PSPP) amounted to €544,171 million. 

Together, the three components make up a total of €712,294 million - a number that effectively means that in 12 months the ECB has indeed been injecting around €60 billion a month - as promised.

The overwhelming majority of that money (over 76%) results from the PSPP program, so let's have a look at that in more detail. The ECB website provides figures for the amount of asset purchases that have been made by each country in the Eurozone. Here they are, ranked according to the value of those purchases.

As you can see, Germany has bought up the most - with nearly €128 billion of purchases authorized by the ECB, followed by France with nearly €102 billion.  It is almost certain that these purchases consist of government bonds, which indirectly means that the ECB has been financing those governments. Despite Germany's tendency to disapprove of ECB money creation, it looks like they don't turn their noses up when they are given the option to do some money creation themselves. And it looks like all the Eurozone countries have been having a go, with the notable exception of Greece, which apparently has not been allowed to buy any assets at all.

In principle, I suppose that I would be in favour of having the ECB financing governments in the Eurozone, even if the mechanism is rather convoluted. However, I must say that I would have thought that the obvious way to do that would be simply to provide each nation with an amount of funding that depended on the population size in each country.

That's why I thought it would be interesting to compare the way the ECB has divided up the €60 billion with the split that would be expected with if each eurozone citizen was treated equally. In the next table, I have removed the €66.1 billion that was used for purchasing "Supranational" assets so that we can see how the ECB's money was split between countries.  I also included the split that would be expected based on population size in each country. That way, I was able to determine what I call an "ECB bias" that reflects the degree to which each country is favoured (or discriminated against) by the ECB.  Here are the results.

As you can see, the country that got the best deal was Luxembourg which was allowed to purchase 58% more assets than it should expect on the basis of its population. Ireland, the Netherlands, Finland and Austria all get a particular good deal. In contrast, countries like Greece (of course) but also Estonia, Cyprus, Latvia and Lithuania all got a bad deal - with far less asset purchasing than would be expected on the basis of population size.

I have written to the ECB to ask them to justify their choices, and to ask them what would be so terrible if each Eurozone country was simply allowed to buy its own bonds to a degree that depended on population size. I'll will let you all know what the ECB has to say.

It's interesting to note what this level of money creation corresponds to at the level of individual citizens. For example, in the case of France, the Banque de France has purchased €102 billion worth of bonds from the secondary markets in 9 months. That’s the equivalent 170.2 € per month for every man, woman and child in France.

In the case of the Netherlands €28.5 billion in 9 months for a population of 16.9 million works out at €186.7 person person per month.

The obvious question for the ECB is this - why not simply put that much money into peoples' pockets, rather than throwing the money at the financial markets? Can anyone seriously claim that it is more "efficient" to inject all this newly created money into the financial markets, than giving the money to the Eurozone's citizens?  The case for QE4People seems overwhelming.

Note added on March 7th 2016:
The figures for the PSPP program at the end of Feburary show that the total has now reached €601.2  billion.  Germany now has a total of €140.4 billion in cumulative monthly net purchases.