FRANKFURT, Germany (AP) — The European Central Bank and its president, Mario Draghi, have played a key role in fighting the government debt crisis afflicting the 17 European Union member countries that use the euro.
The ECB is the issuer of the euro currency and serves as the top monetary authority for the eurozone and its 333 million people.
Some of its key steps have been:
LOWER INTEREST RATES: The ECB has cut its key interest rate four times since Draghi become president. In May, the ECB lowered the so-called main refinancing rate further by a quarter-point to a record low of 0.5 percent.
The refinancing rate is what the bank charges on the credit it offers to eurozone banks and thereby influences interest rates on the loans banks provide to each other, businesses and consumers. Theoretically, a lower rate means cheaper borrowing costs and more incentive to borrow money and expand a business. In practice, a slack economy has meant weak demand for loans.
UNLIMITED BOND BUYS: In 2012, high borrowing costs were threatening to push indebted countries such as Italy and Spain into a financial collapse that could have broken up the euro.
Draghi took a major step toward calming the eurozone crisis by announcing last year that "within our mandate, the ECB is ready to do whatever it takes to preserve the euro."
The ECB followed through on Sept. 6 by offering to purchase unlimited amounts of bonds issued by heavily indebted countries, lowering their borrowing costs — as long as they first ask for help from the eurozone's bailout fund.
The purchases would lower borrowing costs because they would drive up bond prices up and interest yields down, since prices and yields move in opposite directions. Governments could then take advantage of those lower yields when they sell bonds to pay off old bonds that are coming due.
The ECB has actually bought no bonds under the offer. The mere fact that the offer exists, however, affected the bond market and lowered borrowing costs for countries such as Spain and Italy.
CHEAP LOANS TO BANKS: The ECB made an unlimited amount of cheap, three-year loans available to banks on two occasions. In December 2011, 523 banks borrowed 489 billion euros ($608.17 billion) and 800 banks borrowed €530 billion in a second operation in February 2012.
The long duration of the loans gave banks security that they would have the money they needed through 2015. It eliminated market fears that one or more banks might collapse and thus made it easier for banks to borrow money and function in support of the wider economy.
Some of the money is now being repaid by banks under a provision that lets them give the money back after a year.