European Central Bank (ECB) staff presented policy makers withmodels for buying as much as 500 billion euros (US$591 billion) ofinvestment-grade assets, according to a person who attended ameeting of the Governing Council.

Various quantitative-easing (QE) options focused on governmentbonds were shown to governors on Jan. 7 in Frankfurt, includingbuying only AAA-rated debt or bonds rated at least BBB minus, theeuro-area central bank official said. Governors took no decision onthe design or implementation of any package after the presentation,according to the person and another official who attended themeeting. The people asked not to be identified because the talkswere private.

A 500 billion-euro purchase program would take the ECB halfwaytoward its goal of boosting its balance sheet to avert adeflationary spiral in the euro area. The institution is alsobuying asset-backed securities and covered bonds, and governmentbond-buying would be part of fresh stimulus to be considered at theGoverning Council's Jan. 22 meeting.

An ECB spokesman declined to comment on policy makers'proceedings.

“The best package is an open-ended package, a clear statement ofintent to keep buying until bold objectives have been met,” saidRichard Barwell, an economist at Royal Bank of Scotland Group Plc.“If they have to compromise to reach a consensus then its best thatthose compromises don't constrain the ultimate size ofpurchases.”

The euro traded 0.2 percent higher, at $1.1811, at 4:16 p.m.Frankfurt time. The yield on Spanish 10-year bonds climbed 5 basispoints, to 1.72 percent, and its Greek equivalent dropped to 10.1percent.

Governing Council member Ardo Hansson said in an interview withBloomberg News that the ECB should slow its rush toward freshstimulus. Current measures haven't had time to work, and challengesincluding Greece's political crisis make buying government bondsdifficult, he said.

“You shouldn't become overactive every few months when you don'tsee the full effects” of previous measures, Hansson said inFrankfurt yesterday. “I'd personally find announcing a bond-buyingprogram including Greek government bonds in Januaryproblematic.”

No Delay

Greek bonds are currently rated junk at all three major ratingcompanies. Elections on Jan. 25 could bring to power a party thatwants to restructure the nation's debt.

Exceptions for government debt rated below investment gradedidn't feature in the ECB staff presentation, though the treatmentof such securities in previous programs was mentioned, one personsaid. The central bank currently grants Greek and Cypriotgovernment bonds a waiver in its operations as long as thecountries stay in a program that ensures their reform efforts stayon track.

“The idea of focusing on investment-grade assets is clever, asit avoids the Greek issue, which could allow them to announce thefull details of the program in January,” said Nick Kounis, head ofmacro research at ABN Amro Bank NV in Amsterdam. “Eventually theECB will need to do more.”

Executive Board member Benoit Coeure has signaled the ECB won'tlet Greece delay any decision on QE. Euro-area consumer prices fellon an annual basis last month for the first time in more than fiveyears, and ECB President Mario Draghi has warned that thedeflationary risks may demand a response.

The ECB intends to expand its balance sheet toward 3 trillioneuros, from 2.2 trillion euros now. Banks must repay more than 200billion euros in loans early this year.

While Hansson said any purchase program should focus oncorporate bonds, the people at the staff presentation said theseminar centered on government debt. Program sizes below 500billion euros were also considered, along with monthly targets, oneof the officials said.

Governors were asked to not give their opinions on the options,both people said. Hansson's skepticism is in line with oppositionby a minority of officials including Bundesbank President JensWeidmann, who has argued that sovereign-debt purchases involveunwarranted risks and undermine the incentive of governments tomake economic reforms.

The final decision on QE will also be complicated by a EuropeanCourt of Justice opinion on a previous government-bond purchaseprogram due on Jan. 14.

–With assistance from Anchalee Worrachate and Lucy Meakin inLondon and Stefan Riecher in Frankfurt.

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