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ECB to buy eurozone countries' bonds with strict conditions

ECB to buy eurozone countries' bonds with strict conditions
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European Central Bank chief Mario Draghi has given some details of his plan to “save the euro”.

The bank will buy government bonds of struggling eurozone countries such as Spain and Italy that are due to mature in one to three years.

But Draghi said there will be strict conditions; in essence any country that asks for ECB help to ease its borrowing costs must agree to economic reforms in return.

The ECB also believes the eurozone economy will probably contract more than previously expected this year.

It also raised its outlook for inflation for 2012/2013 and kept interest rates on hold, leaving its main rate unchanged at 0.75 percent.

The bond buying programme is intended to reduce the borrowing costs of particularly Spain and Italy. That will buy time for the EU to come up with a longer-term response to the bloc’s debt crisis.

The strict conditions were to address German concerns, but even so Draghi said the decision of the Governing Council was not unanimous and it is presumed that it was Jens Weidmann of the Bundesbank who dissented.

Weak numbers

The ECB said it expected a very gradual economic recovery and revised down its forecasts for gross domestic product (GDP) for this year to a fall of between 0.6 percent and 0.2 percent.

ECB President Mario Draghi said the forecasts also showed a range of between -0.4 percent to growth of 1.4 percent.

The bank’s previous forecasts three months ago had been between -0.5 to 0.3 percent for 2012 and 0.0 percent to 2.0 percent for 2013.

“We expect the euro area economy to recover only very gradually,” Draghi said.