Europe’s central bank to pump trillions into lackluster economy

Global Business

The new headquarters of the European Central Bank in Frankfurt, Germany. (AP Photo/Michael Probst)

The European Central Bank on Thursday launched its most aggressive effort to date to revive the region’s ailing economy by announcing a 19-month program to buy 1.1 trillion euros ($1.26 trillion) in government and private bonds starting in March.

By pumping new money into the eurozone’s banking system, the ECB’s bond purchases should make loans cheaper and easier to get so companies can invest, expand and hire. But the size of the program exceeded investors’ expectations, and the value of the euro immediately fell on anticipation that the new money the ECB will pump out will drive down the currency’s value.

Fears have spread that the eurozone could face a period of chronic falling prices, or deflation, that can paralyze an economy. And it’s still working off a crisis over too much government debt.

The ECB also kept its main interest rate unchanged at a record low 0.05 percent.

ECB President Mario Draghi and the ECB governing council made a key concession to critics of massive government bond purchases: They said the risk of any losses would stay with national central banks for 80 percent of the bonds bought.

German officials had complained that bond purchases have the potential to spread losses from defaulting countries to taxpayers elsewhere.

The ECB acted after months of excessively low inflation in the eurozone that has discouraged borrowing and spending and kept the economy at risk of recession. The fate of the eurozone is vital for the global economy in part because Europe is a major trade partner for the U.S., Britain, Eastern Europe, and Asia.

Growth has been sluggish as governments in countries such as Italy, Spain, Greece, Portugal and Ireland, which have had to restrain spending and raise taxes to try to reduce debt.

Report compiled with information from The Associated Press