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ECB set to propose €1.1 trillion QE plan

Mario Draghi has proposed spending as much as €1.1trn as the European Central Bank seeks to revive inflation in the eurozone.

The ECB president and his executive board recommended asset purchases of €50bn a month until December 2016, according to two officials.

The 25-member Governing Council gathered in Frankfurt yesterday to discuss the plan and could make changes before a final decision today.

While Mr Draghi has argued quantitative easing is needed to prevent the eurozone slipping into a deflationary spiral, German policymakers say it eases the pressure for economic reform. The council’s debate will also be complicated by arguments over whether the risks incurred in the new bond-buying plan should be shared across the region’s 19 central banks or kept within national boundaries.

The proposal “looks larger than implied by the ECB’s previous comments about the size of its balance sheet, especially if it refers to the new sovereign QE programme and does not include the existing ones,” said Riccardo Barbieri Hermitte, of Mizuho International in London. “A lot will depend on the risk-sharing features of the programme.”

Mr Draghi has said he intends to expand the ECB’s balance sheet to the levels seen in early 2012, or about €3tn. While the central bank has assets of about €2.2tn currently, that may shrink as €200bn of outstanding long-term loans mature in coming weeks.

Purchases of sovereign debt or other assets would not start before March 1, according to sources.

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