[h=3]By GEOFFREY T. SMITH[/h]FRANKFURT—The European Central Bank unveiled radical new measures Thursday to support the debt markets of fiscally-challenged countries and ensure that their banks have enough access to its credit lines.
President Mario Draghi told journalists at a regular news conference following the meeting of the ECB's governing council that the measures, central to which are the purchases of government bonds in the open market, will provide "a fully effective backstop" against market volatility.
[h=3]Live Blog: Focus on Draghi[/h]
Follow every article, blog post, video and tweet on the debt crisis from our reporters across Europe.
"We need to be in a position to safeguard the monetary policy transmission mechanism in all countries of the euro area," Mr. Draghi said, repeating that the ECB would stay "firmly within our mandate" of keeping stable prices.
The details of the plan were largely in line with leaks that had dribbled out of the ECB and national central banks over recent days. The ECB will buy government bonds of remaining maturities between one and three years without announcing any limits in advance, as long as the government in question is under a program approved by the euro zone.
Crucially, Mr. Draghi confirmed that the ECB won't claim the status of a senior creditor if the bonds it buys subsequently have to be restructured.
It will continue to offset its purchases in full by taking an equal amount of money out of circulation, and will only continue its purchases as long as the country in question is deemed to be complying with the conditions it has agreed with the euro zone, he said.
The ECB wants to offset, or "sterilize", its purchases to avoid increasing the monetary base, which typically consists of cash in circulation, plus banks' reserves at the central bank.
The new program, called "Outright Monetary Transactions", replaces the existing Securities Markets Program under which the central bank had bought some €209 billion ($263 billion) in government bonds. Mr. Draghi said there was one dissenting view within the ECB regarding the program, in an apparent reference to Deutsche Bundesbank head Jens Weidmann who has publicly opposed the bond purchase plan.
ReutersECB President Mario Draghi, seen at an August news conference
Mr. Draghi also reversed, conditionally, a recent tightening of its rules on collateral for its credit, saying it would again accept all bonds issued or guaranteed by euro-zone governments. This ruling, too, will be subject to the government in question complying with the terms of its European Union program.
The ECB had earlier left its official interest rates unchanged. All the same, it cut its growth forecast for 2012 to a narrow range around minus 0.4%, and its forecast for 2013 to between minus 0.4% and 1.4%.
In his opening remarks, Mr. Draghi slightly raised its forecasts for inflation in the same period, saying that it would stay above 2% this year, but fall below that level next year.
The euro fell back below $1.26 against the dollar after the ECB slashed its economic growth forecasts, but the losses were limited as Mr. Draghi outlined the conditions for buying of government bonds.
Write to Geoffrey Smith at [email protected] and Todd Buell at [email protected]
President Mario Draghi told journalists at a regular news conference following the meeting of the ECB's governing council that the measures, central to which are the purchases of government bonds in the open market, will provide "a fully effective backstop" against market volatility.
[h=3]Live Blog: Focus on Draghi[/h]
Follow every article, blog post, video and tweet on the debt crisis from our reporters across Europe.
"We need to be in a position to safeguard the monetary policy transmission mechanism in all countries of the euro area," Mr. Draghi said, repeating that the ECB would stay "firmly within our mandate" of keeping stable prices.
The details of the plan were largely in line with leaks that had dribbled out of the ECB and national central banks over recent days. The ECB will buy government bonds of remaining maturities between one and three years without announcing any limits in advance, as long as the government in question is under a program approved by the euro zone.
Crucially, Mr. Draghi confirmed that the ECB won't claim the status of a senior creditor if the bonds it buys subsequently have to be restructured.
It will continue to offset its purchases in full by taking an equal amount of money out of circulation, and will only continue its purchases as long as the country in question is deemed to be complying with the conditions it has agreed with the euro zone, he said.
The ECB wants to offset, or "sterilize", its purchases to avoid increasing the monetary base, which typically consists of cash in circulation, plus banks' reserves at the central bank.
The new program, called "Outright Monetary Transactions", replaces the existing Securities Markets Program under which the central bank had bought some €209 billion ($263 billion) in government bonds. Mr. Draghi said there was one dissenting view within the ECB regarding the program, in an apparent reference to Deutsche Bundesbank head Jens Weidmann who has publicly opposed the bond purchase plan.
ReutersECB President Mario Draghi, seen at an August news conference
Mr. Draghi also reversed, conditionally, a recent tightening of its rules on collateral for its credit, saying it would again accept all bonds issued or guaranteed by euro-zone governments. This ruling, too, will be subject to the government in question complying with the terms of its European Union program.
The ECB had earlier left its official interest rates unchanged. All the same, it cut its growth forecast for 2012 to a narrow range around minus 0.4%, and its forecast for 2013 to between minus 0.4% and 1.4%.
In his opening remarks, Mr. Draghi slightly raised its forecasts for inflation in the same period, saying that it would stay above 2% this year, but fall below that level next year.
The euro fell back below $1.26 against the dollar after the ECB slashed its economic growth forecasts, but the losses were limited as Mr. Draghi outlined the conditions for buying of government bonds.
Write to Geoffrey Smith at [email protected] and Todd Buell at [email protected]