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ECB president Mario Draghi Yves Logghe/AP/Press Association Images

The ECB will start its shopping spree within weeks to get the eurozone going

Interest rates remain at record lows as euro bankers plan a two-year spending binge.

THE EUROPEAN CENTRAL Bank will spend at least two years buying up debts in a bid to inject more money into the region’s flagging economies.

ECB president Mario Draghi made the announcement today as the bank opted to keep its headline interest rates at record lows of 0.05%.

It will also leave its deposit rate in negative territory – meaning lenders have to pay to park their cash with the central body.

But as a further attempt at getting cash flowing into the eurozone, the ECB said it will spend a minimum of two years buying asset-backed securities and covered bonds.

Draghi did not put a figure on how much the bank would pay out, although he said the covered-bond purchases would start this month and the overall program would have “a sizeable impact on our balance sheet”.

Meanwhile, thousands of protesters took to the streets outside the meeting in Naples, Italy, where they clashed with riot police armed with water cannons.

Italy Europe Economy Protesters outside today's ECB meeting in Naples, Italy Salvatore Laporta / AP/Press Association Images Salvatore Laporta / AP/Press Association Images / AP/Press Association Images

Just say no to deflation

Draghi said the bank’s move was focused on “maintaining price stability over the medium term and … to supporting economic activity”, a reference to ever-rising concerns the eurozone would slip into deflation after recent figures showed the region’s economy was growing at only 0.3%.

“However, in order to strengthen investment activity, job creation and potential growth, other policy areas need to contribute decisively,” he said.

In particular, the legislation and implementation of structural reforms clearly need to gain momentum in several countries.”

What does it all mean?

Asset-backed securities are packages of loans, leases or other assets which banks can bundle together and sell in one lot.

Similarly, covered bonds are private-sector debts backed with the security of a loan package.

Because of the extra “cover”, these bonds are considered lower-risk than unsecured bonds which leave the buyer out of pocket if the issuer goes under.

By buying the assets from banks, the ECB hopes lenders will use the spoils to turn on the cash taps and feed more money into the wider economy.

No money printing, yet…

It was previously speculated the bank would soon start a more radical stimulus program of so-called quantitative easing – effectively printing money – although the plan is yet to materialise.

But analysts have already flagged the latest buying spree will not be enough to get the eurozone going again and the ECB will soon have no choice except to take more drastic steps.

READ: Eurozone stagnates as Ireland steams ahead

READ: Pressure is mounting on Mario Draghi to turn on the cash taps

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20 Comments
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    Mute SeanieRyan
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    Oct 2nd 2014, 4:43 PM

    What is proposed is only a drop in the ocean.

    The EU and ECB have refused to face up to the problems in the Eurozone for 7 years now.

    In that time Italy has gone from a primary surplus to a deficit and is in a hole that it won’t get out of.

    France’s economy is in semi-perma slump. Along with most of Europe.

    Germany is now in the doldrums as well as its austerity chicken comes home to hatch.

    The Euro has been around for 15 years, 11 of those have been either recession or bare growth.

    There is only bare growth predicted in the Euro zone for the next 2 years.

    64
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    Mute John Deegan
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    Oct 2nd 2014, 5:14 PM

    Next stop QE?
    The yanks have been at it for 6 years, it’s not working,

    27
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    Mute SeanieRyan
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    Oct 2nd 2014, 5:55 PM

    Europe would kill for that type of not working. It has tidied America over the hump and they can start again.

    Financially America is looking up. Yes they owe shedloads of money but they are a 17trn dollar economy. There are nearly energy self sufficient and they have a new stream of nearly free gas on tap.

    QE should have been more about stimulating the economy via infrastructure spending, putting money directly in to peoples pockets rather than stoking asset prices like they did in America and Britain.

    For all its faults it kept America and Britain in the game and they are growing once more.

    The Eurozone is the only part of the global economy that is smaller than in 2007.

    Europe has voluntarily stepped back from growth and jobs and will continue like that for another 5 years at least.

    The rest of the world had to fill the hole in demand and growth while Asia stepped up.

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    Mute John Deegan
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    Oct 2nd 2014, 6:41 PM

    The US are fiddling the stats. Check out http://www.shadowstats.com at 1980 method of measurements inflation is around 10% and unemployment is around 20% in the US. The same people saying the US is recovering were the same clowns telling us the banks were solid and the housing bubble was nothing to worry about in 2007. Energy self sufficiency is a lie too. Fracking and shake aren’t like digging wells, production falls off a cliff much quicker. The US is printing money to buy its own debt. Unsterilised bond monetisation is an economic death sentence.

    16
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    Mute Ronan Mc Namara
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    Oct 2nd 2014, 8:12 PM

    Europe’s economic recovery, which began in the second quarter of 2013, is expected to continue spreading across countries and gaining strength while at the same time becoming more balanced. Ireland economy should easily grow by 3% in 2015 and inflation is at just 1%.

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    Mute SeanieRyan
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    Oct 3rd 2014, 10:06 AM

    Ireland is pulling away from the economic corpse that is the Eurozone.

    Recovery is weakening already in the rest o the Eurozone.

    1
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    Mute Joseph Siddall
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    Oct 2nd 2014, 4:40 PM

    Federalism still not working. In the words of the old truism; “The problem with Socialism is that you, eventually, run out of other people’s money”. QE on the way.

    37
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    Mute SeanieRyan
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    Oct 2nd 2014, 4:46 PM

    The Euro is a political construct, a way to ever closer union.

    It was created in spite of economics, in spite of differing states having different needs etc.

    33
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    Mute Willy Moon
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    Oct 2nd 2014, 5:36 PM

    Never voted to join the EU, still say we should leave it, good and bad in that, but medium term we would be better off

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    Mute John R
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    Oct 2nd 2014, 6:19 PM

    No Wily Moon we wouldn’t be better off. Look at Ireland prior to joining the EU as an example. We were a country still stuck in the 1940s socially and economically. As for what has happened in the last 7 years; Ireland made a mess of things and we are largely responsible for our own problems excluding the disgraceful decision on the bank debt which is down to the ECB/Troika. Even if you discount the bank debt we would still be in an economic mess today due to the collapse in the the tax base caused by the implosion of the bubble economy. Nor were we coerced into joining the Euro. I recall widespread public delight for the project in fact. We are less than 1% of the EU population but we have additional clout due to membership. Without membership of the EU we would be a mere 0.07% of the population of the world without any ability to influence our destiny. People should get real. Leave the EU. Frying pan into the fire!

    18
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    Mute Neal Ireland Hello
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    Oct 2nd 2014, 6:23 PM

    The EU and the ECB are separate things.

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    Mute John Deegan
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    Oct 2nd 2014, 7:20 PM

    The EU is going to break up anyway. We want have to take such a decision.

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    Mute John Deegan
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    Oct 2nd 2014, 5:06 PM

    This will help the bond investors. There will be no “turn on the cash taps and feed more money into the wider economy”. There will be no growth. Meanwhile, with money being splashed about by Draghi to help out bond investors hoping for the “trickle down effect” to we the plebs, we will continue to see “austerity” imposed upon us and continue to fall for it.The EU is a neoliberal nightmare and unfortunately we’re stuck with it and can only hope the entire thing collapses sooner than later. Germany may well help in this regard as she actually manufactures goods unlike the rest of the west.
    http://www.bloomberg.com/news/2014-10-01/abs-investors-gifted-best-returns-in-20-months-by-draghi-plans.html

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    Mute SeanieRyan
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    Oct 2nd 2014, 6:07 PM

    Germany benefits from most of the Eurozone being such a fu88ed up idea. It makes their exports cheaper internationally. It would never have enjoyed the growth of the last decade with the DM.

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    Mute John Deegan
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    Oct 2nd 2014, 6:45 PM

    The future is the BRICs. The Germans depend on Russia for raw materials and energy. The US wishes to break this up and if it costs Germany growth they don’t care. You think the Germans will miss us PIGs when they can trade with markets like China and India? They would miss us like a hole in the head. The BRICs weren’t around when the EU was being set up. The world has changed. Who knows, maybe UKIP and the Tories will make the first move on the breakup. Is say the Germans would be delighted.

    14
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    Mute M Bowe
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    Oct 2nd 2014, 5:56 PM

    “Covered bonds lower risk than unsecured bonds, which leavs the buyer out of pocket if issuer goes under”
    Not in Ireland where unsecured gamblers get paid under threats from ECB!!!!!

    17
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    Mute Kieran OKeeffe
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    Oct 2nd 2014, 6:17 PM

    Lets think about this..bank sells bond..bank receives money.
    ..bank uses same money to buy irish govt debt @3 -4%..
    Result..bankers 1
    Us 0
    Unless banks or govt are forced to put money into the real economy its all pointless

    17
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    Mute B-Egan
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    Oct 2nd 2014, 6:01 PM

    QE a feeding frenzy for the ultra rich a big meal for the rich and the rest of us a well the rest of and our children will pay for it.I would not recommend having children the banking end game is 2/3s way through . Next a bubble as cheap money floats around then financial collapse the a banking union to reform the reckless behaviour of individual banks. End game absolute power to the money junkies who caused it and then profited and ultimately seized control of everything. Classic chess move . Checkmate no escape people had their chance before its gone too far now. The future the future is a world society all the same no culture all governed by a banking cartel were profit rules and civil rights are a thing of the past. Welcome to the new age. A fourth Reich.

    16
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    Mute Marc Power
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    Oct 2nd 2014, 6:40 PM

    Zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

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    Mute sid
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    Oct 2nd 2014, 7:43 PM

    I agree with everyone here. Look at the s & p 500 and the growth in it, all the qe finding its way into stocks. What about the US debt. Totally huge. This is what’s in store for us. And with no guarantee of calmer waters ahead.

    5
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