Christine Lagarde proclaimed a “rather historical moment” on Thursday after the European Central Bank’s rate-setters unanimously agreed to create a bond-buying tool the ECB president hopes will stop higher interest rates from sparking a new eurozone debt meltdown.
By giving itself the power to buy unlimited amounts of the bonds of any country that it judges to be suffering from an increase in its borrowing costs beyond the level justified by economic fundamentals, the ECB has addressed a key vulnerability haunting eurozone policymakers ever since a debt crisis almost ripped the single currency apart a decade ago.
The idea to tackle big gulfs in the borrowing costs of member states had initially received a frosty reception from officials in frugal countries, such as Germany and the Netherlands, which were worried the central bank would encourage profligacy among weaker countries and could stray too close directly financing governments — a practice that is illegal under EU law.