European Central Bank to inject €1.1 trillion in historical bonds investment

The European Central Bank failed to disappoint this week as it unveiled plans to buy government bonds worth €1.1 trillion with new money.

At Thursday’s conference, Mario Draghi finally ended rampant speculation over quantitative easing plans, which had markets positioning themselves ahead of the European Central Bank (ECB) conference.

The ECB bravely took the plunge and announced plans to launch a sovereign bond-buying scheme that will amount to more than one trillion euros, which exceeded market expectations.

The economy of Europe has been battling with slow growth and low inflation for some time, which had investors calling for a stimulus boost from the region’s central bank. For some time now, the ECB attempted to steer clear from fully-blown quantitative easing (QE) and instead used more traditional measures. However, recent data highlighted the need for further action from the region’s central bank.

ECB plan beats anticipated amount

Now the ECB has actually gone further than markets had anticipated, as the bank’s president Mario Draghi unveiled plans to buy 60 billion euros worth of debt per month, starting in March and ending in September 2016, which will total 1.1 trillion euros.

“The combined monthly purchases of public and private sector securities will amount to 60 billion euros,” said Draghi.

“They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim [of rates close to but below two per cent],” he explained.

Reforms necessary as well

Shares in Europe rose in reaction to the announcement, as traders adjusted to the more than welcome news. However, Mario Draghi warned that while QE will go a long way to repairing the economy, it will have to be accompanied by reforms from member-country governments.

“What monetary policy can do is to create the basis for growth, but for growth to pick up you need investment, for investment you need confidence, and for confidence you need structural reforms,” Draghi explained.

“The more [governments] do, the more effective our monetary policy will be,” he added.