The European Central Bank (ECB) has embarked on a spending spree that could see it pump €1tn (£790bn) into the eurozone’s financial system.
After months of debate, on Monday the Frankfurt-based central bank began buying covered bonds in the next stage in its battle to revive the eurozone economy and keep deflation at bay.
ECB president Mario Draghi has made it clear the programme should return the ECB’s accumulated assets to 2012 levels, which means that by the time officials in Frankfurt have finished, its balance sheet could have risen from €2tn to €3tn. The aim of the move is to ease bank credit in the 18-member currency union after a difficult year that has seen a decline in business lending hamper recovery.
Covered bonds have an income stream of debt repayments backed by pools of home or commercial property loans; 90% of the global market is based in Europe, especially in Denmark, Germany, Spain, France and Sweden.
The hope is that banks sell the bonds to the ECB and use the money to lend to businesses.
Later this year it plans to extend the move to include asset-backed securities (ABSs), which are considered safe following conservative asset valuations.
