ECB launches massive bond buying

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60B euros per month until September 2016

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FRANKFURT: The European Central Bank began 2015 with a bang on Thursday, launching a massive trillion-euro bond purchase program to ward off deflation and end stagnation in the eurozone economy.

After holding interest rates at their all-time low once again at its first policy meeting of the year, the bank said it would buy 60 billion euros ($69 billion) in private and public sector bonds per month.

Bank chief Mario Draghi explained that the aim was to stimulate the economy enough to drive eurozone inflation, which turned negative in December, back up to the ECB’s 2.0 percent target.

The extraordinary measures—known as quantitative easing or QE—Draghi said, will continue “until we see a sustained adjustment in the path of inflation.”

Opponents of QE have also expressed concern that taxpayers in stronger economies such as Germany’s will have to foot the bill should any country default on its debt.

But the plan had been designed so that only 20 percent of the risk will be shared, with the rest shouldered by the national central banks of the countries concerned, Draghi said.

Economists are also divided as to whether quantitative easing can really work in a single currency bloc made up of 19 economies in very different states of health.

‘Not out of woods’
Critics worry the measure will take the pressure off governments to reform their economies and get their finances into shape.

Christine Lagarde, the head of the International Monetary Fund, said the QE program will “strongly increase the prospects of the ECB achieving its price stability mandate.”

But she added, “It remains essential that the accommodative monetary stance is supported by comprehensive and timely policy actions in other areas, not least structural reforms to boost potential growth and ensure broad political support for demand management policies.”

At the World Economic Forum in Davos, German Chancellor Angela Merkel insisted “we should not become diverted from the fact that we as politicians need to put a framework for recovery in place.

“Europe continues to be confronted by great challenges. We have often talked about the debt crisis . . . we have this somewhat under control but we are not out of the woods yet,” she said.

AFP

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