The European Central Bank has launched a government bond-buying program that will pump hundreds of billions of euros into a sagging eurozone economy, Reuters reports.
The ECB said Thursday it would buy sovereign debt from March this year until the end of September next year, despite opposition from Germany’s Bundesbank and concerns in Berlin it could allow spendthrift countries to slacken economic reforms.
Together with existing schemes to buy private debt and funnel hundreds of billions of euros in cheap loans to banks, the new quantitative easing (QE) program will release 60 billion euros (US$68 billion) a month into the economy, ECB president Mario Draghi said.
By September next year, more than 1.1 trillion euros will have been created under QE, Bloomberg News calculated.
QE is the ECB’s last remaining major policy option for reviving economic growth and warding off deflation.
The flood of money impressed markets: the euro fell more than two US cents to US$1.14108 on the announcement, and European shares hit seven-year highs.
“All eyes were on Mario Draghi, and he has delivered a bigger bazooka than investors were expecting,” Reuters quoted Mauro Vittorangeli, a fixed income specialist at Allianz Global Investors, as saying.
The ECB and the central banks of eurozone countries will buy up bonds in proportion to each institution’s “capital key”, meaning more debt will be scooped up from the biggest economies such as Germany than from small member states such as Ireland.
Economists noted that Draghi had said only 20 percent of purchases would be the responsibility of the ECB. This means the bulk of any potential losses, should a euro zone government default on its debt, would fall on national central banks.
“It is counterproductive to shift the risks of monetary policy to the national central banks,” former ECB policymaker Athanasios Orphanides was quoted as saying.
“It does not promote a single monetary policy. This path toward Balkanisation of monetary policy would signal that the ECB is preparing for a break-up of the euro.”
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