Euro Area

[drone]

ECB agrees to unlimited government bond purchases

The European Central Bank on Thursday moved forcefully to ensure the survival of the euro, agreeing to unlimited purchases of government bonds and a series of other steps meant to restore the world’s confidence in the struggling currency union.

With fresh evidence that a regional recession was undermining even Germany’s industrial might, ECB President Mario Draghi said government bond and other markets had become so dysfunctional that the central bank had to create “a fully effective backstop” for its 17 members.

The broad aims of the new bond-buying program were couched carefully in the language of the bank’s legal mandate to control inflation and not directly finance the region’s governments. But the aim was clear: After nearly three years of a crisis in which the threat of a euro breakup fueled a self-fulfilling slide, Draghi said the bank needed to break the region’s corrosive cycle.

“We want this to be perceived as a fully effective backstop,” Draghi said. “We are in a situation where a large part of the euro area is in a bad equilibrium, where you have self-fulfilling expectations that feed upon themselves and generate very adverse scenarios. There is a case for intervening to break these expectations.”

The new program answers what has been a long-standing call by many from within and outside the euro zone — including the Obama administration and the International Monetary Fund — for the ECB to be more aggressive in trying to resolve the euro zone’s crisis. The ability of the currency union’s governments to act has often been constrained by national politics, the difficulties of coaxing agreement from 17 sets of leaders and their parliaments, and the reluctance of wealthier countries to use their tax dollars to help support others.

Let the raiding of the taxpayers commence!