FRANKFURT, Germany (AP) - The European Central Bank unveiled its most ambitious plan yet to ease Europe's financial crisis with a plan to buy unlimited amounts of government bonds to help lower borrowing costs for countries struggling to manage their debts.
Large-scale purchases of short-term government bonds would drive up their price and push down their interest rate, or yield, taking some pressure off of financially stressed governments such as Spain and Italy.
"We will have a fully effective backstop to avoid destructive scenarios," ECB President Mario Draghi said at a press conference, in which he also defended the euro currency union as "irreversible."
After the ECB plan was announced, the yields on government bonds across Europe fell and stock markets rallied.
"This is a potential game-changer," says Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics. "This is the first time the ECB has committed its balance sheet in this way. And the way it is done is politically sustainable in Europe."
The ECB's 23-member governing council approved the plan with only one dissent. The head of Germany's Bundesbank, Jens Weidmann, opposes the plan, arguing that the ECB is moving too far in the direction of financing government deficits, which is prohibited by the European Union treaty.
The ECB's pledge of support came with an important caveat: Countries that want the central bank to help with their borrowing costs must first ask the 17 countries that use the euro to buy their bonds with existing bailout funds and they must submit their economic policies to the scrutiny of the International Monetary Fund.
That puts immense pressure on financially stressed countries such as Spain and Italy - which have been reluctant to seek help from their euro partners - to take the next step. Both countries face borrowing rates that are in the upper range of what's sustainable over the long-term.
If Spain and Italy were to accept aid from the eurozone's bailout funds, it would put them in the same company as Greece, Ireland and Portugal - something the two countries have been wary of.
An earlier ECB effort to drive down rates by buying bonds was limited in size - the ECB spent $264 billion - and did not have lasting impact. The ECB ended that program Thursday.
The ECB first said its new bond-buying plan was in the works on Aug. 2, and markets have climbed steadily since then. Investors across the globe greeted the release of a more detailed plan with further enthusiasm.