FRANKFURT, Germany — The European Central Bank unveiled its most ambitious plan yet to ease Europe’s financial crisis with a plan to buy unlimited amounts of government bonds to help lower borrowing costs for countries struggling to manage their debts.
Large-scale purchases of short-term government bonds would drive up their price and push down their interest rate, or yield, taking some pressure off of financially stressed governments such as Spain and Italy.
"We will have a fully effective backstop to avoid destructive scenarios," ECB president Mario Draghi said at a news conference, in which he also defended the euro currency union as "irreversible."
After the ECB plan was announced, the yields on government bonds across Europe fell and stock markets rallied.
"This is a potential game-changer," says Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics. "This is the first time the ECB has committed its balance sheet in this way. And the way it is done is politically sustainable in Europe."
The ECB’s 23-member governing council approved the plan with only one dissent. The head of Germany’s Bundesbank, Jens Weidmann, opposes the plan, arguing the ECB is moving too far in the direction of financing government deficits, which is prohibited by the European Union treaty.
— The Associated Press