ECB could pump €1tn into eurozone in fresh round of quantitative easing

Mario Draghi suggested the bank could act to prevent dangerous deflation in comments cheered by European investors

The European Central Bank is ready to pump up to €1tn (£782bn) of fresh stimulus into the flagging eurozone economy to ward off a dangerous deflationary spiral, Mario Draghi has signalled.

Draghi, the ECB’s president, said on Thursday that the bank’s governing council was unanimously willing to announce more unconventional measures, signalling the possibility of creating electronic money – or quantitative easing – should a deteriorating economy make it necessary.

Speaking in Frankfurt, he said: “Should it become necessary to further address risks of too prolonged a period of low inflation, the governing council is unanimous in its commitment to using additional unconventional instruments within its mandate. “The governing council has tasked ECB staff and the relevant eurosystem committees with ensuring the timely preparation of further measures to be implemented, if needed.”

Draghi added that the ECB balance sheet would continue to expand in the coming months and was likely to reach early 2012 levels, suggesting a further €1tn to be pumped into the economy. Despite announcing no new measures this month, Draghi’s comments were enough to push the euro to a two-year low against the dollar and to cheer investors around Europe, with most of the major European markets, including the FTSE 100, closing up.

After recent reports of a rift between the president and some of the council’s minority over his leadership style, economists said this was a show of unity from Draghi and the ECB governing council.

“Draghi’s press conference was a demonstration of unity and readiness to act at the ECB,” said Christian Schulz, senior economist at Berenberg. “The governing council now closed the ranks and emphasised their easing bias. [It] is clearly getting more enthusiastic about balance sheet expansion and quantitative easing.”

Draghi also played down the idea of a north-south divide emerging among eurozone countries: “Not at all,” he said when asked if there was a split.

Full article: ECB could pump €1tn into eurozone in fresh round of quantitative easing (The Guardian)

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