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The European Central Bank launched a €750-billion emergency bond purchase scheme in a bid to stop a pandemic-induced financial rout from shredding the euro zone’s economy and raising fresh concerns about the currency bloc’s viability.

With much of Europe in lockdown amid the coronavirus outbreak, economic activity has come to a near standstill and markets have been in a tailspin, foreshadowing a deep recession on par with the 2008 global financial crisis and raising questions about the euro zone’s cohesion at times of stress.

Under pressure to act to bring down borrowing costs for indebted, virus-stricken countries such as Italy, the ECB launched a new, dedicated bond-purchase scheme, bringing its planned purchases for this year to €1.1-trillion ($1.7-trillion) with the newly agreed buys alone worth 6 per cent of the euro area’s gross domestic product.

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“Extraordinary times require extraordinary action,” ECB president Christine Lagarde said after an emergency policy meeting late on Wednesday. “There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.”

The bond purchases will continue until the “crisis phase” of the epidemic is over and non-financial commercial paper will also be included for the first time among eligible assets, the ECB said.

Although global stocks continued to fall after the ECB’s move, the euro held broadly steady and bond yields in the bloc’s periphery tumbled, with Italy leading the way with a 90 basis point drop on its 10-year benchmark.

Although it will still buy government bonds according to each country’s shareholding in the bank, the capital key, the ECB said it would be flexible and may deviate from this rule.

This was seen as a clear indication that it will not tolerate the surge in yield spreads between euro-zone members seen in Italy and Greece in recent days.

Euro-zone officials, who were critical of the ECB’s stimulus measures last week, rushed to the bank’s support this time, with French President Emmanuel Macron leading the way.

GREECE

The purchases will also include for the first time debt from Greece, which has been shut out of ECB buys because of its low credit rating.

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Greek Finance Minister Christos Staikouras said the decision made about €12-billion in Greek government debt eligible for purchases, a vital support for a country that relies heavily on tourism income.

Crucially, the ECB said it was prepared to increase the size and duration of its purchases if necessary and review any constraints that stand in its way – a likely reference to a cap on owning more than a third of any country’s debt.

“Provided the fiscal response continues to build up, this looks like a game-changer for the euro area economy and markets,” Frederik Ducrozet, a strategist at Pictet Wealth Management, said.

However, the ECB left its -0.5-per-cent deposit rate unchanged just as it did last Thursday, another sign that policy makers may now see a further cut doing more harm than good.

Meeting in a regular session last Thursday, the ECB approved a large stimulus package, but the measures disappointed investors, prompting some to question the bank’s commitment to former ECB boss Mario Draghi’s pledge to do “whatever it takes” to save the euro.

With bond yields on the bloc’s periphery soaring and the spread between Italian and German 10-year debt doubling in just a few days, pressure has been mounting on the ECB to do more.

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Panic selling pushed 10-year Italian yields above 3 per cent briefly on Wednesday, raising concerns about the sustainability of its debt, before ECB purchases and verbal intervention pushed it back to around 2.3 per cent.

Additional measures from Frankfurt may not of course fix the issue just like aggressive rate cuts and far greater bond-buying by the U.S. Federal Reserve haven’t calmed sentiment.

U.S. stocks deepened their sell-off on Wednesday and the Dow Jones erased virtually the last of its gains since U.S. President Donald Trump’s 2017 inauguration, as the widening repercussions of the coronavirus pandemic threatened to cripple economic activity.

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