In a keenly anticipated announcement at the ECB’s headquarters in Frankfurt, Draghi said the operation would continue, “until we see a sustained adjustment in the path of inflation”.
By buying eurozone governments’ bonds using electronically created money – so-called quantitative easing– the ECB hopes to shore up confidence, boost inflation, and drive down the value of the euro on foreign exchanges, helping to boost exports and kickstart growth. The €60bn a month figure includes the purchases of private sector assets that the ECB had already begun to try to unlock credit markets.
Draghi said the decision on the ECB’s governing council was made with “so large a majority that no vote was necessary”.
European Central Bank President and ex-Goldman Sachs Managing Director Mario Draghi.
The launch of QE is likely to infuriate Berlin, which views it as akin to a bailout for free-spending governments such as Greece. However, with average prices already falling across the eurozone, the ECB wants to avoid the threat of a deflationary spiral, in which consumers and businesses slash spending while they wait for prices to fall further, dragging the economy into a slump.
“While the sharp fall in oil prices over recent months remains the dominant factor driving current headline inflation, the potential for second-round effects on wage and price-setting has increased and could adversely affect medium-term price developments,” Draghi said.
In a concession to the Germans, Draghi promised that national central banks would bear most of the risk of their governments defaulting, with just 20% of the new bond-purchases subject to “risk-sharing”. In an aside that will be heard loud and clear in Athens, Draghi also warned that, “some additional eligibility criteria will be applied in the case of countries under an EU/IMF adjustment programme”. That could allow the ECB to exclude Greek bonds from QE if, for example, a future Syriza government ditched the austerity programme imposed by its creditors.
Draghi has promised to do “whatever it takes” to safeguard the single currency, and has repeatedly signalled in recent months that with eurozone inflation slipping well below the ECB’s 2% target, he felt more action was necessary. However, he stressed that QE alone would not repair the eurozone economy, and reforms by member-country governments would also be necessary.
“What monetary policy can do is to create the basis for growth, but for growth to pick up you need investment, for investment you need confidence, and for confidence you need structural reforms”. He urged governments urgently implement reforms, saying, “the more they do, the more effective our monetary policy will be.”
The ECB had already announced, in a statement earlier on Thursday, that it would leave its main interest rate unchanged at 0.05%.