January 22, 2015 / 5:57 PM / 3 years ago

How ECB will print money and share the risk

FRANKFURT (Reuters) - The European Central Bank is launching a one-trillion-euro-plus money printing program to bolster the flagging euro zone economy.

Here is how it will work:

- In March, the ECB and national central banks of euro zone member states will start buying 60 billion euros of chiefly government debt each month. That figure includes rebundled private debt, asset-backed securities and covered bonds, typically worth about 10 billion euros, on top of the roughly 50 billion euros in state bonds.

- The plan is to buy until September 2016 or until there has been a “sustained” improvement in consumer price inflation, which recently turned negative. The program could end earlier if successful, or be extended if its impact is small.

- 12 percent of the buying will be in the secure debt of European institutions - the European Investment Bank as well as bodies set up to help troubled countries in the euro crisis, the European Stability Mechanism and the European Financial Stability Facility.

A further 8 percent of the overall purchases will be government bonds bought directly by the ECB.

Any risk here will be shared across the entire euro zone.

- The remainder - 80 percent of the government bonds - will be the responsibility of national central banks. They bear the risk.

- Bonds with a credit rating of BBB-, one notch above junk, qualify. Below that, a country must be in an aid program.

A maximum of 33 percent of the bonds issued by a country may be bought. This means that Greece would not qualify for now because the ECB and other euro zone central banks already own more than this amount.

- Only 25 percent of any individual debt issue in circulation can be bought.

- Central banks that buy are on an equal footing with other bondholders in the event of default. Bonds with a maturity of between 2 and 30 years are in play.

Reporting by John O'Donnell; editing by David Stamp

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