The European Central Bank has taken a dramatic step to stimulate the region’s troubled economy, unveiling a massive bond buying program worth at least $1.3 trillion.
President Mario Draghi said the ECB program would cover public and private sector securities including — for the first time — bonds issued by eurozone governments.
Purchases would begin in March at a monthly rate of 60 billion euros ($70 billion) and are intended to continue until the end of September 2016, but quantitative easing could extend beyond that.
“They … will in any case be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term,” Draghi said.
The ECB took the unprecedented step because previous stimulus measures — including record low interest rates and buying other assets — had failed to boost inflation expectations.
Prices across the eurozone fell in December, pulled down by sharply lower energy costs. The region is also suffering from depressed economic activity, and unemployment remains near record highs.
Draghi has overcome German opposition to QE as inflation turned negative, threatening a damaging deflationary spiral of the kind that hobbled Japan for nearly two decades.
The ECB governing council was unanimous in its view that QE was a legitimate tool for the bank to use, and there was a large majority in favor of pulling the trigger now, he said.
QE is the last big weapon left in the ECB’s arsenal and most experts say its deployment is long overdue.
But they also caution that printing money alone won’t be enough to rescue Europe, and that the best the ECB can do is buy time for governments to carry out long-overdue reforms.
That was a view reinforced by Draghi.
“For growth to pick up, you need investment, for investment you need confidence, and for confidence you need structural reforms,” he said. “The ECB has taken a very expansionary measure today, but it’s now up to the governments to implement these structural reforms.”