ECB gives itself unprecedented powers to buy unlimited amounts of debt as coronabonds battle brews

ECB ditches limits on how much of a country's debt it can buy as row over coronabonds escalates

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Christine Lagarde, ECB president, has vowed to do 'everything necessary' to help the economy

The European Central Bank (ECB) has given itself extraordinary new powers to snap up almost unlimited amounts of sovereign debt to stop the eurozone economy crumbling.

Policymakers in Frankfurt have ditched limits to the amount of a country’s bonds they can buy under the ECB’s €750bn (£685bn) Pandemic Emergency Purchase Programme (PEPP).

Up to a third of a country’s debt could previously be purchased under ECB rules, but those constraints have been significantly relaxed for its new quantitative easing (QE) programme to tackle Covid-19. Any bonds bought under PEPP will not count towards the 33pc limit, giving the ECB unprecedented scope to prop up eurozone economies, a legal document in the Official Journal of the EU revealed. 

The central bank's plans for an unprecedented intervention into markets sent bond yields across Europe tumbling and came ahead of a showdown in Brussels over issuing "coronabonds" - eurozone debt help by a group of countries to fight the economic fallout of Covid-19.

Nine eurozone governments including France, Italy and Spain, have called for shared debt to be issued by the bloc, but they face opposition from more prudent northern members such as the Netherlands and Germany.

Analysts predicted the ECB's decision will lead to another expansion of its so-called QE programme, where money is printed to buy government bonds.

Countries are expected to take on huge amounts of debt as they attempt to shield businesses and workers from the devastating impact of lengthy lockdowns. The previous constraints were in place to stop ECB rate-setters being accused of bankrolling governments.

The decision suggests there is no limit to the PEPP support and the programme could be increased if needed, Bank of America economist Sophia Salim said.

President Christine Lagarde has promised the ECB “will do everything necessary” to help eurozone economies, with much of the Continent paralysed by the coronavirus. After launching PEPP last week, Ms Lagarde insisted there are “no limits to our commitment to the euro” and vowed to use the “full potential of our tools”.

The new terms of PEPP are significantly more flexible than previous QE rounds and paves the way to increase the size of the programme, Nordea chief economist Tuuli Koivu said.

She said: “Given that a number of euro area economies are in a free fall and at the same time, governments’ expenditures will balloon, it is likely that the ECB will have to implement even more drastic tools."

The document also revealed the ECB can buy bonds with a shorter maturity of 70 days, compared to its previous lower limit of one year. The ECB will not be obliged to publish information about bond purchases at a country level.