Julia Kollewe 

European Central Bank poised to launch €1tn quantitative easing

ECB president Mario Draghi has been discussing the possibility of pumping money into the eurozone since the summer
  
  

European Central Bank in Frankfurt
European Central Bank in Frankfurt. Photograph: Hannelore Foerster/Getty Images Photograph: Hannelore Foerster/Getty Images

The European Central Bank is set to unveil a massive bond-buying programme on Thursday to kickstart the ailing eurozone economy, with reports suggesting it could total more than €1tn.

The eagerly expected quantitative easing programme, which will come two-and-a-half years after ECB president Mario Draghi said he would do “whatever it takes” to protect the euro, looks to have cleared all hurdles despite strong opposition from Germany.

Speculation over the details reached fever pitch in recent days, and Italy’s prime minister Matteo Renzi said on Wednesday the ECB could “help Europe give a message of a new economic direction”. Reports out of Frankfurt on the same day suggested that the ECB is considering a sovereign bond buying programme of €50bn a month starting in March, to run through 2016, which would come to €1.1tn. This is far more than markets had been expecting, although it was also reported that no formal decision had been taken and the numbers could still change. Draghi is due to announce the unprecedented measures at a press conference at ECB headquarters in Frankfurt at 1.30pm UK time.

There are concerns, however, that it is too little, too late. Growth in the 19-nation eurozone has been lacklustre, and the currency bloc slipped into deflation in December, when prices fell by 0.2%, the first annual decline for five years.

Nick Kounis at ABN Amro said: “We think that the QE programme needs to be towards the upper end of the range to impress financial markets, and this looks increasingly likely. As well as government bonds, other securities, such as agency debt and corporate bonds could well be included.”

Draghi and his colleagues on the ECB governing council have been discussing the possibility of pumping money into the eurozone banking system, by acquiring government debt from financial institutions, since the summer. But the Bundesbank and the German government have opposed the plans, amid worries that its citizens would be left nursing other countries’ debts.

Markets are curious to see what concessions had to be made to get the Germans on board, or “even if they are on board, particularly given the size of the package that is being reported,” said Michael Hewson, chief market analyst at CMC Markets UK.

“If the decision is not unanimous, which seems likely given the reported size of the package, then the market should be prepared for legal challenges in the German courts, and it is in this context that any conditionality is likely to be key, particularly if the French and Italian governments show no signs of implementing further reforms.”

 

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