The European Central Bank’s (ECB) president, Mario Draghi, said that the ECB has agreed to launch a further and potentially unlimited bond buying programme to lower borrowing costs for the eurozone’s weakest members and to mitigate the continuing debt crisis.
“Under appropriate conditions, we will have a fully effective backstop to prevent potentially destructive scenarios,” Draghi told a news conference after the ECB’s monthly meeting. “No ex-ante quantitative limits are set on the size of outright monetary transactions [OMTs].” he added, using the formal term for the ECB’s bond purchases.
The ECB’s president, who in July pledged to do “whatever it takes” to preserve the euro, 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 has met opposition from Germany’s Bundesbank, would focus on bonds maturing within three years and was strictly within the ECB’s mandate, Draghi added. Only one member of the ECB’s governing council had dissented.
Some recent reports suggested that Bundesbank chief Jens Weidmann had considered resigning over his opposition to bond buying, although others stated that no such threat was made and that he intends to remain on the council to argue his case. Weidmann has argued that the policy is tantamount to printing money in order to pay off a country’s debt, which is expressly forbidden by the ECB’s mandate.
Draghi also said that the ECB would only help countries that signed up to and implemented strict policy conditions, with the eurozone’s rescue fund also buying their bonds, and preferably with the International Monetary Fund (IMF) involved in designing and monitoring the conditions. To benefit from the OMT programme, governments would also have to be attached to a programme with one of the eurozone bailout funds and the ECB would stop buying a country’s bonds if it stopped complying with the bailout terms imposed.
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