Stimulus plan begins in Eurozone

The world’s attention will be focused on Mario Draghi on March 5 when he announces the details of the ECB’s new quantitative easing stimulus plan which began on Monday [Xinhua]

European markets on Monday began operating under the quantitative easing (QE) program announced by the European Central Bank (ECB) earlier this year.

QE is seen by most analysts as a last ditch effort by the bank, and its chief Mario Draghi, to pull the Eurozone out of rampant deflation and recession.

Essentially, the ECB will buy back government bonds that were purchased by the banks. This in turn creates more money in circulation in the Eurozone economies.

It is tantamount to printing more money and is used by most advanced nations as a means to revitalizing the economy when existing monetary policy proves to be inadequate.

The bond-buying – or QE – mechanism therefore provides banks with more funds to use for loans to finance projects and fuel investment.

The US launched its $85-billion-a-month QE in 2009 in the wake of the sub-prime mortgage financial crises.

It was terminated in mid-2014 after boosting economic growth and slashing unemployment by more than 30 per cent.

Markets have been waiting since the second quarter last year for the ECB to make the announcement, but purported dissent within the Bank may have played a role in a delay of several months.

The current QE plan involves the ECB buying back 60 billion euros ($68 billion) every month until the program terminates in September 2016 – a total stimulus of 1.1 billion euros.

Draghi has hinted QE could be extended past the 2016 date.

In the meantime, the ECB is due to meet in Cyprus on Thursday to discuss the details of QE and Greece’s debt crisis amid publication of Eurozone economic forecasts.

The Eurozone economy is expected to have performed better in recent months due to the euro’s plummeting value, making European exports more lucrative for global buyers.

But inflation is likely to remain far below the 2 per cent annual rate the ECB says provides for a healthy economy.