ECB unveils massive € 1tr stimulus programme

The European Central Bank on Thursday began 2015 with a much-anticipated stimulus, revealing plans for a massive trillion-euro bond purchase programme to ward off deflation and end stagnation in the eurozone economy.
After holding key interest rates at their current all-time lows once again, the ECB launched a scheme to buy 60 billion euros ($69 billion) worth of private and public sector bonds per month between March and September 2016.
ECB chief Mario Draghi explained the aim was to drive eurozone inflation -- which turned negative in December -- back up to the ECB's target of around 2.0 percent.
The programme, which is known as quantitative easing (QE), will continue "until we see a sustained adjustment in the path of inflation," Draghi told a news conference.
While QE has been used by other central banks around the world, the ECB has so far steered away from it amid concerns it would take the guardian of the euro outside its remit.
Critics, including the German central bank or Bundesbank, complain that QE is a licence to print money to get governments out of debt.
But Draghi said that the ECB's 25-member governing council at its first meeting of the year was "unanimous" on the principle that such a plan was a valid monetary policy tool.
And a "large majority" was in favour of taking such measures "now", he added.
Opponents to QE had also expressed concern that European taxpayers would have to foot the bill should any one country default on its debt.
But the plan had been designed so that only 20 percent of those risks would be shared, with the other 80 percent to be shouldered by the national central banks of the countries concerned, Draghi said.
Economists are also divided as to whether quantitative easing can really work in a single currency bloc made up of 19 economies in very different states of health.
- 'Not out of woods' -
Europe's paymaster Germany, in particular, is concerned that the measure will take the pressure off governments to reform their economies and get their finances in shape.
At the World Economic Forum in Davos, German Chancellor Angela Merkel said before the ECB announcement that "no matter what sort of decision the ECB will take, we should not become diverted from the fact that we as politicians need to put a framework for recovery in place.
"Europe continues to be confronted by great challenges. We have often talked about the debt crisis ... we have this somewhat under control but we are not out of the woods yet," she said.
But Draghi took a similar line.
"Monetary policy can create a basis for growth but it's up to governments and the EU Commission to make sure growth actually takes place," he said.
Financial markets cheered the ECB's plans.
European stocks rallied on the announcement and US shares were higher an hour into trading, while the euro sank against the dollar.
"Once again, Draghi delivered," said Berenberg Bank economist Christian Schulz.
Sixty billion euros per month were equivalent to 0.6 percent of eurozone GDP "and thus smaller than the Japanese QE, but larger than any of the US Federal Reserve's easing programmes since 2008," Schulz said.
ECB quantitative easing would affect the economy in many ways, from the liquidity channel, bank lending, interest rates, asset prices and portfolio rebalancing to the exchange rate, the expert said.
"But the most important channel is the impact on confidence and expectations. An impressive announcement like the one today can boost investors' and households' inflation expectations," Schulz said.