The European Central Bank has agreed to launch a new and potentially unlimited bond-buying programme to lower struggling euro zone countries borrowing costs and draw a line under the debt crisis,ECB President Mario Draghi said on Thursday.
Seeking to back up his July pledge to do whatever it takes to preserve the euro,Draghi said the new plan,aimed at the secondary market,would address bond market distortions and unfounded fears of investors about the survival of the euro.
The scheme,which the Bundesbank is known to have opposed,would focus on bonds maturing within three years and was strictly within the ECBs mandate,Draghi said. Only one member of the ECB governing council had dissented,he said.
Under appropriate conditions,we will have a fully effective backstop to prevent potentially destructive scenarios,Draghi told a news conference after the central banks monthly meeting.
No ex-ante quantitative limits are set on the size of outright monetary transactions,he said,using the formal term for ECB bond-buying programmes.
Investors were on tenterhooks,waiting to hear how decisively the ECB would act to help bring down the borrowing costs of Spain and Italy,after disagreements among policymakers on the plan were played out in public last week.
Draghis statement at least met expectations,analysts said. With the bond-buying plan the focus of Thursdays meeting,the ECB kept interest rates on hold,leaving its main rate unchanged at 0.75 per cent.
Pressure on Draghi intensified after an unsubstantiated German newspaper report last week that Bundesbank chief Jens Weidmann had considered resigning over his opposition to bond-buying,although several sources say he has made no such threat and believes in staying at the table to argue his case.
Draghi appeared to have succeeded in securing overwhelming support on the governing council. He said the ECB would only help countries that signed up to and implemented strict policy conditions,with the euro zones rescue fund also buying their bonds,and preferably with the IMF involved in designing and monitoring the conditions.
Renewed ECB intervention in the euro zones bond markets is crucial to buy governments time to come up with a longer-term response to the blocs debt crisis,which began in early 2010.