The European Central Bank (ECB) announced its intention to undertake a program to purchase the debt of eurozone countries, otherwise known as quantitative easing, on Jan. 22. While many of the details of the announcement had been leaked prior to its release, ECB President Mario Draghi contradicted the leaks' suggestion that the ECB would buy 50 billion euros (more than $57 billion) of debt per month, instead raising the figure to 60 billion euros. The scale of the project was also unexpectedly large, with the purchases set to continue at least until September 2016, bringing the program's total sum to 1.1 trillion euros — more than double the market expectation of 500 billion euros. The market has reacted favorably to these surprises, as evidenced by the weakening of the euro to under $1.15 for the first time since 2003.
For the ECB to make these moves, it was necessary to craft a plan that could overcome German objections. As Europe's largest economy, Germany is resistant to any ECB actions that directly support Europe's weaker members, since such moves give the appearance to German citizens that hard-earned German money is supporting reckless southern Europeans. Any ECB move to purchase sovereign bonds from countries such as Italy and Spain as part of the program would have been unacceptable to Berlin. The ECB solved this problem by announcing that it would only purchase 8 percent of the bonds itself; national central banks will purchase the remaining 92 percent. In other words, each country will buy most of its own bonds and shoulder its own risk. While this solution solved the problem of avoiding German objections and got the quantitative easing program passed, it also created a new issue: The move away from risk-sharing and mutualization is inherently a step toward separation that will be a political blow to the European project and could ultimately lead to the breakup of the eurozone.
The other major issue that Draghi had to avoid in forming his program was the question of Greece. Greece's general election is set for Jan. 25, and Europe's central powers are currently engaged in a standoff with the country's electorate and political parties, with the Syriza party threatening to tear up the bailout program in the event of a victory. If the ECB had excluded Greece from its purchases, it could have been accused of meddling in the country's internal politics, which the European Court of Justice suggested it should not do in an opinion released last week. Conversely, if the ECB had included Greek bonds, some of the economic pressure on Greece would be lifted. In his announcement, Draghi stipulated that the ECB could not hold excessive debt for any one member state, giving himself room to exempt the already-indebted Greece from the program until at least July, by which point he hopes the standoff between Greece and the rest of Europe will have been resolved.