ECB set to announce large-scale bond-buying programme

The European Central Bank (ECB) is expected to announce a huge bond-buying programme later on Thursday, aimed at revitalising the eurozone economy.

Reports suggest that asset purchases could be €50bn (£38bn) per month until the end of 2016 - double the amount previously expected.

Creating new money to buy government debt, or quantitative easing (QE), should reduce the cost of borrowing.

 

The eurozone is flagging and the ECB is seeking ways to stimulate spending.

Lowering the cost of borrowing should encourage banks to lend and eurozone businesses and consumers to spend more.

Big bazooka

It is a strategy that appears to have worked in the US, which undertook a huge programme of QE between 2008 and 2014.

The UK and Japan have also had sizeable bond-buying programmes.

Up until now, the ECB has resisted, although the bank's president, Mario Draghi, reassured markets in July 2012 by saying he would be prepared to do whatever it took to maintain financial stability in the eurozone, nicknamed his "big bazooka" speech.

Since then, the case for quantitative easing has been growing.

Earlier this month, figures showed the eurozone was suffering deflation, creating the danger that growth would stall as businesses and consumers shut their wallets, as they waited for prices to fall.

Whose debt?

The ECB's bond-buying programme is likely to begin in March, although the final decision over whether to start the measures will be taken at a meeting of the bank's 25-member policy-making board on Thursday.

There remains a possibility that the German members of the board will object to the plan. They would prefer any government bonds purchased to be held by national governments, rather than centrally by the ECB. That would reduce the risk of a default by struggling peripheral countries, such as Greece and Italy, being shouldered by the richer members of the eurozone.

On Wednesday, the Organisation for Economic Co-operation and Development (OECD) urged Mr Draghi to pursue uncapped quantitative easing.

Angel Gurria, secretary-general of the OECD, told the World Economic Forum in Davos on Wednesday: "Let Mario go as far as he can. I don't think he should cap it. Don't say 500bn (euros). Just say, 'As far as we can, as far as we need it.'"