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• We are sceptical about the ability of the announced ECB’s measures to facilitate credit easing, as they do not address banks’ most pressing concern, which is capital adequacy.
• Purchases of mezzanine ABS tranches would facilitate banks to offload credit risk and free up capital. However, euro area authorities seem reluctant to back high risk tranches with guarantees that would allow the ECB to buy them.
• Given the downside risks to our economic and inflation outlook, it is more likely than not that the ECB will include public debt in its asset purchases program. However, this remains a close call, given fierce opposition to debt monetization.