ECB President Jean-Claude Trichet surprised analysts and market players when he announced the bank had decided to start purchasing bonds for the first time. He said details would be unveiled at the next meeting of the ECB's governing council on 4 June.
The decision to buy covered bonds was unanimous, but followed "very, very profound discussions," Trichet added, hinting at a wide range of views among governing council members.
Bonds were chosen because "it was important to concentrate on one channel of financing the economy that we thought was in a difficult situation," he said.
The ECB plan targets "covered bonds," a financial instrument guaranteed by the issuing banks, which should allay fears that the ECB might be ready to dilute the quality of its assets as the US Federal Reserve has done, analysts said.
"The single most important thing is the decision to start buying covered bonds. The initial extent of the program will be of around €60 billion - not that much but a good starting point," said Aurelio Maccario of UniCredit.
"The ECB is almost squaring the circle by buying relatively safe/highly-rated paper and providing relief to the banking system that, in turn, should mean re-birth of these markets and more possibilities to extend medium-long term financing to the real economy," added Maccario.
But some analysts note that €60 billion is fairly small. "Sixty billion euros doesn't seem a very significant contribution, and there were probably more effective ways of boosting the economy," said Francesca Panelli from Aletti Gestielle.
"Buying government bonds would probably be more effective, but that is obviously more problematic for the ECB than for the Bank of England. I think buying commercial paper would also probably be more effective."
According to Julian Callow from Barclays Capital, the amount "represents 3% of the euro system's current balance sheet, and 5% in more normal times (like end-2006), and 0.7% of our estimate for 2009 euro-area nominal GDP".
Germany and Spain have the biggest covered bond markets, and Callow estimated that for the 16-nation euro zone, the market was worth 1.5 trillion euros, making the 60 billion figure modest in comparison, though it could increase in the future.
"These measures will help to further relax money market conditions with major relief to the banking system," added Maccario.
(EurActiv with Reuters and other agencies.)