Stock markets raised but the Euro is at it’s lowest point in 11 years after the measures of the European Central Bank (ECB)
The ECB launched an aggressive bond-buying program Thursday in an effort to shore up Europe’s flagging economy, ushering in a new era for a central bank that until recently resisted following the easy-money policies pursued by central banks in the U.S., U.K. and Japan.
Stock and bond markets rallied and the euro plunged on the prospect of more than €1 trillion ($1.16 trillion) in ECB bond purchases in monthly installments of €60 billion—paid for with newly created money—swirling in financial markets. Still, doubts remained whether the policy, known as quantitative easing or QE, will work in Europe’s fragmented economies, many of which have unemployment rates well into the double digits.
ECB President Mario Draghi said the ECB will buy a total of €60 billion a month in assets including government bonds, debt securities issued by European institutions and private-sector bonds. The purchases of government bonds and those issued by European institutions such as the European Investment Bank will start in March and are intended to run through to September 2016. Mr. Draghi signaled the purchases could extend further if the ECB isn’t meeting its inflation target of just below 2%. In December, consumer prices fell 0.2% in December on an annual basis in the eurozone, the first drop in over five years.
The ECB’s new stimulus “should strengthen demand, increase capacity utilization and support money and credit growth,” Mr. Draghi said.
He rejected any criticism that the vast expansion of the ECB’s easy-money policies would stoke inflation down the road, noting that inflation has stayed very low even after several interest-rate cuts and abundant ECB loans to banks. “There must be a statute of limitations for those who say there will be inflation,” he said.
In a nod to concerns in healthier euro countries over the prospect of assuming some of the risks of their neighbors’ debts, the ECB said government bonds will be mostly excluded from potential loss sharing. Credit risks associated with the bonds of EU institutions will be shared, however. “We are not in a one-country setup,” Mr. Draghi said.