Published time: January 22, 2015 13:43
Edited time: January 22, 2015 15:32
The European Central Bank announced it will embark on a fully-fledged quantitative easing program from March, which will break down to €60 billion per month. The move is made to counter a triple-dip recession in the eurozone.
“Under this expanded program, the combined monthly purchases of public and private securities will amount to €60 billion, intended to be carried out to 2016,” Draghi said Thursday. The bank will buy €1.14tn ($1.3 trillion) in government debt, a decision that will inject extra money into supply, spurring a devaluation in the currency.
His full statement is available on the ECB wesbite.
After the announcement, the euro fell 1.2 percent against the dollar to $1.14, an 11-year low for the currency shared by the 19 nations of the eurozone.
“All monetary measures should provide support to the euro area recovery,” Draghi said, stressing that the package will help investments and boost economic activity.
The bank is far below its target inflation rate of 2 percent, and fell into negative territory in December at -0.2 percent. Draghi said that the actions will be conducted until the bank sees a sustained adjustment in inflation.
The value of the euro has been slipping against the dollar hit an 11-year low against the greenback. At the time of the decision, the euro was trading at $1.16, not far from $1.17 it made at its debut in 1999, the year the currency union was formed.
QE alone can’t revive the battered EU economy, and it will be “up to governments to enact these monetary reforms,”the ECB chief said, adding that the decision taken unanimously by the Governing Council, in a nod to Germany, which publicly rejected the policy.
Germany, the blocs largest economy, has voiced staunch opposition to the plan, and has challenged the legality of the program.
As a sort of concession to Germany, which didn’t support QE, 20 percent of the bank’s bond purchases will be undertaken by national central banks.
Confidence in the south of the EU was shattered, as bond yields in countries like Italy and Spain fell to record lows. The president said that the bank may purchase bonds in Greece after July.
The 19-nation eurozone would be following in the steps of the US, UK, and Japan, which all have created new money to keep their economy afloat during the crisis. The US program created $4.5 trillion in government bonds in total.
Leading up to the announcement, the Swiss National Bank ditched its euro peg, as a QE program would further devalue the euro, and the Swiss franc along with it.
QEs have been largely criticized for not delivering real effect to ordinary people, since the money flows into the bond market and not into people’s direct spending power.
The next obstacle for the eurozone is Greece which holds a general election on January 25, where left-wing SYRIZA is poised to take control of the fragile economy that hasn’t seem a significant improvement under its EU bailout plan. In campaign speeches, SYRIZA leaders have promised to re-negotiate the austerity terms the country was forced into. Analysts worry about the political and economic effect on the continent should there be a ‘Grexit’ from the euro.