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By Nick Reeve | Published Sep 06, 2012

ECB’s Draghi outlines stimulus plans for eurozone economy

European Central Bank (ECB) president Mario Draghi has laid out details of the bank’s plan to buy up the bonds of struggling peripheral eurozone states.

As expected, Mr Draghi has said the ECB would buy short-dated bonds from troubled countries such as Spain and Italy. There is no upper limit to the amount the ECB can pump into the nation’s sovereign bond markets, as it bids to reduce their costs of borrowing.

Mr Draghi said the programme would provide a “fully effective backstop” for the debt-laden periphery.

He hinted that these countries would have to meet reform criteria in order to qualify, which would be similar to those imposed on recipients of previous bailouts.

The bond buying programme, dubbed “outright monetary transactions” (OMTs) by the ECB, will be “sterilised”, meaning the ECB will offset the money it puts into the financial system through the bond purchases by taking money out elsewhere, although Mr Draghi did not specify where this would come from.

The ECB and its fellow funders of the OMTs will assume the same creditor rights as other investors, Mr Draghi said, allaying fears that the bank would demand to be repaid first above other creditors.

The ECB will publish details weekly on the market values of bonds bought, with the duration and breakdown by country being published monthly.

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