ECB unveils unlimited bond buying plan to ease Euro Zone crisis

Mario Draghi, President of the European Central Bank, sought to bolster sentiment in the beleaguered euro area as he insisted that the euro was “irreversible” and unveiled the unlimited bond buying programme. The markets are hoping this will help reduce the borrowing costs of the region’s most troubled nations.

Reiterating comments that he had made in July that the bank would do “whatever it takes,” within its mandate, to save the Euro Zone, Dragi insisted that the bank had acted within its mandate in deciding to embark on “outright monetary transactions” enabling it to buy an unlimited number of sovereign bonds with maturities of one-to-three years on the secondary market.

The decision, he hoped, would provide an “effective backstop” to remove tail risks from the euro area. However, the bank stopped short of providing the guidance — that some had been expecting — on what yield level it would target for participating nations.

“OMTs (outright monetary transactions) will enable us to address the severe distortion in the government markets from the unfounded fear of investors,” he said. The announcement based on the decision by the central bank’s governing body — and agreed by all but one of its members — was largely in line with expectations, is not without conditions.

Nations would have to both meet the requirements — fiscal consolidation and structural reform — imposed on them for receiving assistance through the euro area’s two bailout funds, the EFSF and the delayed European Stability Mechanism.

The ECB will also carry out its own assessment of whether an OMTs were needed, and could terminate the bond purchases if its aims were met, or a country failed to meet the necessary conditions. The IMF will also be involved in the monitoring process.

Also on Thursday, the ECB said it was keeping rates on hold, with economic growth within the region expected to remain weak.

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