FRANKFURT — The European Central Bank is widely expected to announce on Thursday that it will finally begin buying government bonds as part of a so-called quantitative easing program.
In principle, quantitative easing is simple — print money, buy bonds. The idea is to pump money into the economy, encourage more lending and stimulate growth. Such bond-buying programs by the United States Federal Reserve and the Bank of England were largely considered successful.
But the eurozone is not a country. It is a currency union with 19 members, each with its own government bonds and its own politics. That makes quantitative easing in the eurozone much more complicated.
Here’s what you need to know:
How much money would the central bank spend on the program and how quickly?
The central bank has previously indicated that it wants to increase its stimulus spending by 1 trillion euros ($1.16 trillion). The betting this week has been that the central bank will begin by buying €50 billion of bonds a month.
What bonds will it buy, what proportion?
There are 19 eurozone countries that issue bonds, some much riskier than others. That will make any decision fraught with political implications. Germany, for one, has long opposed bond-buying by the European Central Bank on the grounds that the country does not want to prop up its weaker neighbors.
Will it work?
Skeptics contend that the European Central Bank has waited too long, and that any quantitative easing effort might be too little, too late.
The central bank’s governing council meets Thursday morning and will put out an announcement at 1:45 p.m. in Frankfurt (7:45 a.m. in New York) on whether it will be changing interest rates. No move of that sort is expected. Instead, the real news could come at 2:30 p.m. in Frankfurt, when the central bank’s president, Mario Draghi, makes a statement and then takes questions from the news media.
As part of an effort to revive the moribund economy, the European Central Bank is expected to announce a broad bond-buying program, like the quantitative easing program that largely proved successful in the United States and Britain.
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The goal of the program
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The central bank buys government bonds and other assets on the market.
The purchases push rates down and encourage lending.
The lending helps stoke inflation and stimulates the economy.
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The scope of the program
The eurozone does not have a single Pan-European government bond similar to United States Treasuries. The most likely solution for the E.C.B. is to buy bonds in proportion to each country’s share of central bank capital. It could also look at a country’s debt levels or risk.
Eurozone countries ranked:
BY E.C.B. SHARE
BY DEBT LEVEL
BY SAFETY
SHARE OF EUROPEAN
CENTRAL BANK CAPITAL
GROSS NATIONAL DEBT,
IN BILLIONS OF EUROS
YIELDS OF GOVERNMENT BONDS
WITH MATURITIES CLOSE TO 10 YEARS
Jan. 1, 2015
2Q 2014
Jan. 15, 2015*
Germany
18.0
%
Italy
2,168.9
Germany
0.39
–
2.0
BY SAFETY
YIELDS OF GOVERNMENT BONDS
WITH MATURITIES CLOSE TO 10 YEARS
Jan. 15, 2015*
Germany
0.39
%
LOWEST
YIELD
Netherlands
0.49
Luxembourg
0.51
Austria
0.52
Finland
0.58
France
0.66
Belgium
0.76
Slovakia
1.22
Latvia
1.23
Ireland
1.31
Spain
1.57
Malta
1.72
Italy
1.73
Lithuania
1.91
Slovenia
1.96
Portugal
2.64
Cyprus
6.00
Greece
8.65
Estonia
n/a
David Jolly reported from Frankfurt and Jack Ewing from Davos, Switzerland.
