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| E.C.B. Extends Bond-Buying Program to Protect Eurozone Economy | E.C.B. Extends Bond-Buying Program to Protect Eurozone Economy |
| (about 17 hours later) | |
| FRANKFURT — The European Central Bank said on Thursday that it would buy large quantities of bonds and other assets for longer than planned but would cut the size of the purchases, a decision it insisted did not a signal that a much anticipated “tapering” of stimulus measures had begun. | FRANKFURT — The European Central Bank said on Thursday that it would buy large quantities of bonds and other assets for longer than planned but would cut the size of the purchases, a decision it insisted did not a signal that a much anticipated “tapering” of stimulus measures had begun. |
| “Tapering” is a loaded word in financial circles. By buying enormous amounts of bonds in recent months, the European Central Bank has kept market interest rates low, part of efforts to encourage lending and bolster economic growth in the 19-country eurozone. But by reducing its purchases over time, it could limit or reverse this effect. | “Tapering” is a loaded word in financial circles. By buying enormous amounts of bonds in recent months, the European Central Bank has kept market interest rates low, part of efforts to encourage lending and bolster economic growth in the 19-country eurozone. But by reducing its purchases over time, it could limit or reverse this effect. |
| It recalls the so-called taper tantrum in the United States in 2013 after Ben S. Bernanke, then the chairman of the Federal Reserve, suggested that the American central bank would begin reducing its asset purchases. Market turmoil followed as investors sold Treasury bonds in anticipation of higher interest rates. | |
| “There is no question about tapering,” Mario Draghi, the president of the European Central Bank, said at a news conference. “Tapering has not been discussed today.” | “There is no question about tapering,” Mario Draghi, the president of the European Central Bank, said at a news conference. “Tapering has not been discussed today.” |
| The response on financial markets showed that investors did not believe Mr. Draghi’s rejection of the word, at least initially. | The response on financial markets showed that investors did not believe Mr. Draghi’s rejection of the word, at least initially. |
| Although the central bank extended the time frame for asset purchases to the end of 2017 from March, investors focused on plans to reduce the asset purchases beginning in April to 60 billion euros, or about $64 billion, from €80 billion. | Although the central bank extended the time frame for asset purchases to the end of 2017 from March, investors focused on plans to reduce the asset purchases beginning in April to 60 billion euros, or about $64 billion, from €80 billion. |
| Markets settled down after Mr. Draghi said that he defined tapering as “a process where purchases would go to zero.” | Markets settled down after Mr. Draghi said that he defined tapering as “a process where purchases would go to zero.” |
| “That has not been discussed,” he said, adding: “There is no tapering in sight. The E.C.B. is going to stay in the markets.” | “That has not been discussed,” he said, adding: “There is no tapering in sight. The E.C.B. is going to stay in the markets.” |
| European stocks rose and the yields on eurozone government bonds receded after Mr. Draghi offered those reassurances. Analysts who had initially declared the beginning of tapering modified their views. | European stocks rose and the yields on eurozone government bonds receded after Mr. Draghi offered those reassurances. Analysts who had initially declared the beginning of tapering modified their views. |
| “At first glance, today’s decisions looked, walked and quacked like tapering,” Carsten Brzeski, chief German economist at ING-DiBa in Frankfurt, said in a note to clients. “Draghi gave his best to convince everyone that it is not tapering. We tend to believe him.” | “At first glance, today’s decisions looked, walked and quacked like tapering,” Carsten Brzeski, chief German economist at ING-DiBa in Frankfurt, said in a note to clients. “Draghi gave his best to convince everyone that it is not tapering. We tend to believe him.” |
| Below are other issues that have raised concerns among some economists, investors and central bankers. | Below are other issues that have raised concerns among some economists, investors and central bankers. |
| The reasoning behind the European Central Bank’s asset purchases is that they are one of the most effective ways to bring inflation in the eurozone closer to the official target of just under 2 percent. (In November, the annual inflation rate was 0.6 percent, a level considered unhealthy for the economy.) | The reasoning behind the European Central Bank’s asset purchases is that they are one of the most effective ways to bring inflation in the eurozone closer to the official target of just under 2 percent. (In November, the annual inflation rate was 0.6 percent, a level considered unhealthy for the economy.) |
| Mr. Draghi said on Thursday that inflation would rise next year along with the price of oil. That is allowing the central bank to reduce the size of its asset purchases, which are a form of money printing. | Mr. Draghi said on Thursday that inflation would rise next year along with the price of oil. That is allowing the central bank to reduce the size of its asset purchases, which are a form of money printing. |
| But he also suggested the eurozone economy still was a long way from being in good health. | But he also suggested the eurozone economy still was a long way from being in good health. |
| Signs of higher inflation have already prompted some economists to press for cuts to the bond buying, which critics say has distorted prices. When the European Central Bank ends the so-called quantitative easing program, they say, the shock to bond prices could destabilize the fragile eurozone economy. | Signs of higher inflation have already prompted some economists to press for cuts to the bond buying, which critics say has distorted prices. When the European Central Bank ends the so-called quantitative easing program, they say, the shock to bond prices could destabilize the fragile eurozone economy. |
| The central bank’s “argument in favor of bond purchases no longer holds for 2017,” Clemens Fuest, president of the Ifo Institute, an economic research group in Munich, said in a statement. “The negative side effects of the E.C.B.’s bond purchases will come to the fore.” | The central bank’s “argument in favor of bond purchases no longer holds for 2017,” Clemens Fuest, president of the Ifo Institute, an economic research group in Munich, said in a statement. “The negative side effects of the E.C.B.’s bond purchases will come to the fore.” |
| As he has for years, Mr. Draghi beseeched leaders of eurozone countries to take steps to help their economies grow faster, warning that the European Central Bank cannot guarantee the health of the common currency area on its own. | As he has for years, Mr. Draghi beseeched leaders of eurozone countries to take steps to help their economies grow faster, warning that the European Central Bank cannot guarantee the health of the common currency area on its own. |
| But when Italian voters rejected constitutional overhauls on Sunday, they also demonstrated how difficult it was for leaders to effect change. | But when Italian voters rejected constitutional overhauls on Sunday, they also demonstrated how difficult it was for leaders to effect change. |
| Resistance to overhauls in Italy, as well as in France, has strengthened the arguments of those who say that European Central Bank support for the eurozone economy has allowed national leaders to procrastinate rather than deal with the region’s problems, such as high government debt or laws that stifle entrepreneurship. | Resistance to overhauls in Italy, as well as in France, has strengthened the arguments of those who say that European Central Bank support for the eurozone economy has allowed national leaders to procrastinate rather than deal with the region’s problems, such as high government debt or laws that stifle entrepreneurship. |
| Mr. Draghi rejected those arguments on Thursday. | Mr. Draghi rejected those arguments on Thursday. |
| Investors are showing nervousness about economic and political stability in the eurozone after the Italian referendum, as anti-European Union sentiment rises in much of the bloc. | Investors are showing nervousness about economic and political stability in the eurozone after the Italian referendum, as anti-European Union sentiment rises in much of the bloc. |
| If investors demand higher premiums to buy government bonds, the increase in borrowing costs are likely to ripple through credit markets and make it more difficult for businesses in the eurozone to grow. | If investors demand higher premiums to buy government bonds, the increase in borrowing costs are likely to ripple through credit markets and make it more difficult for businesses in the eurozone to grow. |
| One of the biggest fears in the wake of the Italian vote, and the resignation on Wednesday of the country’s prime minister, Matteo Renzi, was that political uncertainty would upset plans to pump fresh capital into struggling Italian banks. | One of the biggest fears in the wake of the Italian vote, and the resignation on Wednesday of the country’s prime minister, Matteo Renzi, was that political uncertainty would upset plans to pump fresh capital into struggling Italian banks. |
| Mr. Draghi said those banks could be fixed — the European Central Bank functions as the eurozone’s supreme bank overseer, and it is ultimately responsible for the health of the area’s banking system. | Mr. Draghi said those banks could be fixed — the European Central Bank functions as the eurozone’s supreme bank overseer, and it is ultimately responsible for the health of the area’s banking system. |
| But Mr. Draghi also listed all the risks threatening global stability, including Britain’s vote to exit the European Union and the election of Donald J. Trump in the United States. Mr. Draghi described the president-elect as having a “radical” new view of the world. | But Mr. Draghi also listed all the risks threatening global stability, including Britain’s vote to exit the European Union and the election of Donald J. Trump in the United States. Mr. Draghi described the president-elect as having a “radical” new view of the world. |
| “I think what central banks can do,” he said, “is keep a steady hand.” | “I think what central banks can do,” he said, “is keep a steady hand.” |