FRANKFURT—The European Central Bank unveiled its most aggressive plan to date to deal with Europe's nearly three-year-old debt crisis, promising open-ended—but still conditional—purchases of short-maturity government bonds to keep borrowing costs down for Spain, Italy and other struggling countries.
The measures, which revolve around the purchases of government bonds in the open market, will provide "a fully effective backstop" against market volatility, ECB President Mario Draghi told journalists at a regular news conference following the meeting of the ECB's governing council.
"We need to be in a position to safeguard the monetary policy transmission mechanism in all countries of the euro area," Mr. Draghi said, repeating that the ECB would stay "firmly within our mandate" of keeping stable prices.
The details of the plan were largely in line with leaks out of the ECB and national central banks over recent days. The ECB will buy in the secondary market only government bonds with remaining maturities between one and three years without announcing any limits in advance, and as long as the government in question is under a program approved by the euro zone.
The measures will primarily benefit fiscally troubled countries like Spain and Italy, which are facing difficulties financing their budget deficits, because their borrowing costs have soared to nearly unsustainable levels in recent months. But the onus will still be on the countries themselves to ask for help, and to accept the related conditions.
Asked whether the new program would be operational in time to help Spain over a refinancing hump in October, Mr. Draghi said: "It's in the hands of the government of Spain, and the governments of the euro area."
Madrid has so far refrained from seeking external aid for its funding needs, saying it would await details of the ECB plan first. Speaking at a joint news conference with German Chancellor Angela Merkel in Madrid, Spanish Prime Minister Mariano Rajoy said he hadn't yet read Mr. Draghi's comments and so he had no announcements to make.
Ms. Merkel said she and Mr. Rajoy didn't discuss conditions for possible additional aid for Spain, which has already sought help for its cash-strapped banks. But in a sign that she wouldn't oppose the measures announced by Mr. Draghi, she told reporters that "we have to regain trust in the euro." At a financial event later Thursday, her Finance Minister Wolfgang Schaeuble also voiced only the most muted of criticisms of Mr. Draghi's decision.
Although many of the details had been anticipated before Thursday's ECB meeting, there was notable relief from markets in the fiscally strapped regions of the euro zone. Spanish and Italian government bonds rallied and European banking stocks surged.
Spanish 10-year yields traded at a three-month low of 6.04% compared with 6.09% before the conference started, down 0.34 percentage point on the day. Two-year Spanish yields also eased to 2.87% from 2.94%, according to Tradeweb.
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