ECB expected to inject up to €1 trillion into eurozone

ECB expected to inject up to €1 trillion into eurozone

The European Central Bank (ECB) is expected to announce it will inject up to €1 trillion into the ailing eurozone economy.

The ECB could purchase government bonds worth up to €50bn (£38bn) per month until the end of 2016 – double the amount previously expected.

Creating new money to buy government debt, or quantitative easing (QE), should reduce the cost of borrowing.

The eurozone is flagging and the ECB is seeking ways to stimulate spending.

Lowering the cost of borrowing should encourage banks to lend and eurozone businesses and consumers to spend more.

Big bazooka

It is a strategy that appears to have worked in the US, which undertook a huge programme of QE between 2008 and 2014.

The UK and Japan have also had sizeable bond-buying programmes.

What is a government bond?

Governments borrow money by selling bonds to investors. A bond is an IOU. In return for the investor’s cash, the government promises to pay a fixed rate of interest over a specific period – say 4% every year for 10 years. At the end of the period, the investor is repaid the cash they originally paid, cancelling that particular bit of government debt.

Government bonds have traditionally been seen as ultra-safe long-term investments and are held by pension funds, insurance companies and banks, as well as private investors. They are a vital way for countries to raise funds.

Source: http://www.bbc.com/news/business-30915210

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