ECB Opens Euro Fire Hose and Davos Highlights

The European Central Bank confirmed it would spend 1.1 trillion euros on asset-backed securities to fight deflationary trends throughout the Eurozone, while business leaders and politicians discussed economic trends at Davos.

The ECB announced Thursday that its program would aim at targeting deflation in the Eurozone, causing the euro to fall and European stocks to rise. Many rumors had suggested over 1 trillion euros would be committed to the program before the announcement.

The European Central Bank confirmed it would spend 1.1 trillion euros on asset-backed securities to fight deflationary trends throughout the Eurozone, while business leaders and politicians discussed economic trends at Davos.

The ECB announced Thursday that its program would aim at targeting deflation in the Eurozone, causing the euro to fall and European stocks to rise. Many rumors had suggested over 1 trillion euros would be committed to the program before the announcement.

German Dissent

ECB President Mario Draghi ignored continued dissent from German policymakers, who previously warned that a widespread asset-purchasing program could be illegal. Bundesbank President Jens Weidmann again asserted his disagreement to the stimulus program, after other Germany policymakers told reporters that many misunderstood the data, and that core inflation was actually positive in the Eurozone.

Despite their stance, Mario Draghi said the ECB will expand its existing purchasing of asset-backed securities and covered bonds, targeting an inflation rate of 2%. The ECB said the purchases should cause inflation to rise by 0.4% in 2015 and 0.3% in 2016.

The ECB will purchase 60 billion euros of asset-backed securities, including 45 billion euros of sovereign debt, 5 billion of institutional bonds, and 10 billion euros of over ABS and covered bonds.

Mario Draghi also affirmed that, despite German resistance, the program would benefit Greece, whose debt rating is now at junk status. Additionally, the ECB may expand the bond-purchasing program in the future.

The decision to expand a QE program saw broad support from most economists. Former U.S. Treasury Secretary Larry Summers praised the move, saying “we’re all for QE in Europe” during a panel at Davos with International Monetary Fund chief Christine Lagarde, adding that Germany needs to spend more to help the rest of Europe.

Davos Highlights

While equity markets soared on the news in Europe and the United States, several industry leaders and politicians met to discuss the falling price of oil and other economic issues at this year’s economic conference in Davos, Switzerland. The ultra-exclusive event saw leaders from Asia, Europe, America, and other parts of the world meet to discuss how their central banks and major players should respond to changing economic trends.

Political tensions also peppered the meetings. Ukraine president Petro Poroshenko again affirmed that Russians are occupying parts of Eastern Ukraine and that he and his government are fighting for “European values” even as 9,000 Russian soldiers and hundreds of tanks are occupying Ukraine.

Meanwhile, OPEC leaders said at the meeting that they would not cut output to raise prices, asserting that demand-driven price fluctuations need respect in a World Economic Forum panel on the topic. At the same time, Saudi Arabia leaders dismissed rumors that oil will fall to $20 per barrel, hinting that the commodity was nearing a price floor.