The ECB has been at pains to distinguish its securities markets programme (SMP) from US- and UK-style quantitative easing (QE). The differences, in practice, look minor.

Bond buying to date has been on a larger scale than suggested by the stated objective of restoring depth and liquidity to dysfunctional markets. €26.5 billion of securities were purchased in the first seven days (assuming T+3 settlement), equivalent to a weekly rate of €18.9 billion. If this pace were sustained for three months, the ECB would acquire a portfolio of €246 billion, equivalent to 2.6% of Eurozone broad money, M3, and 33% of the outstanding government debt of Greece, Ireland, Portugal and Spain (15% if Italy is also included).

The ECB claims that the SMP will have no impact on monetary conditions because buying will be sterilised. This is oversimplistic. A purchase of bonds from a non-bank investor results in an increase in both the investor's bank account balance, included in the broad money supply, M3, and bank reserves, a component of the monetary base. If the ECB sterilises the purchase by conducting a reserves-draining operation with the banking system, the rise in the monetary base is reversed but not that of M3. (The M3 increase is reversed only if sterilisation involves a sale of assets to the non-bank private sector. Note that M3 is unaffected if the initial purchase is from a bank rather than non-bank.)

While the ECB is sterilising its bond purchases, moreover, it has reverted to supplying unlimited funds in its three- and six-month lending to the banks, in addition to the main one-week repo operation. The monetary base, therefore, is being determined by banks' demand for ECB credit, which has increased as weaker institutions have suffered funding shortfalls. Accordingly, the base has risen by 3.8% in the first two weeks of the SMP and is up by 7.4% since late April.

The ECB's method of sterilisation – auctioning one-week deposits to banks with surplus liquidity – is, in any case, cosmetic. Banks are likely to regard these deposits as a close substitute for reserves. The effectiveness of sterilisation may depend on the length of time reserves are removed from the system, with permanent asset sales having the largest impact.

The SMP, so far at least, appears to pass the QE "duck test". Opposition from Bundesbankers and their ECB allies, however, could yet derail the programme.