22 Jan 2015

ECB unleashes 1,100,000,000,000 euro financial ‘bazooka’

The European Central Bank will pump 1.1tn euros (£840bn) into financial markets until September 2016 in a last-ditch attempt to prevent the fragile eurozone economy from grinding to a halt.

The European Central Bank (ECB) has confirmed a €1.1tn (£840bn) quantitative easing programme – a policy known as the “big bazooka” – aimed at curtailing the eurozone’s slide towards economic stagnation.

The stimulus package, announced at a news conference by ECB president Mario Draghi, will see injections of €60bn (£45bn) a month into financial markets until September 2016 starting from March.

The aim? To prevent the 19-nation euro area spiralling into deflation.

Read more: Eurozone QE: 20 things you need to know

Countries under a bailout programme, such as Greece, will be included in the QE programme but with some additional criteria.

A political crisis in Greece risks plunging the euro area into further chaos, as a snap general election this Sunday could bring an anti-bailout party to power – a development which would potentially lead to its exit from the single currency.

Last ditch rescue attempt

The ECB has also said eurozone interest rates are being held at the record low of 0.05%, where they have been since September 2014.

The central bank is under pressure to act as the bloc faces stagnation, with inflation sliding below zero – accelerated by the slide in oil prices – and raising the threat of a damaging spiral of falling prices known as deflation.

The announcement was bolder than markets had expected this morning – with European stock markets rising as the core details emerged.The value of the euro fell following Mr Draghi’s announcement, dropping by a cent against the US dollar to $1.1511 before recovering slightly.

But it is likely to draw different receptions across Europe. Financial observers in Germany, for example, see QE as akin to bail out for free-spending governments.

Reporting from Greece Channel 4 News Economics Editor, Paul Mason, has sent this:

Sensing their potential dissatisfaction, Draghi said that 20 per cent of bond purchases would be undertaken by national central banks (rather than across Europe), which would have to share the risk of their government defaulting.

Mr Draghi pledged two and a half years ago to do “whatever it takes” to preserve the single currency.

He added that the aim was to achieve a “sustained adjustment in the path of inflation”, which the ECB has pledged to maintain.